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Saffery Champness Builds On UK VAT Reform Recommendations

by Jason Gorringe,, London

15 November 2017

Sean McGinness, Edinburgh-based VAT Director at accountants Saffery Champness, has recommended additional VAT reforms the UK Government could adopt to enhance the impact of recommendations newly put forward by the Office for Tax Simplification.

McGinness said: "The report recommends that the Government should consider increasing or reducing the VAT registration threshold or introducing a 'smoothing' mechanism to step the payments in the first three years to 70 percent, 80 percent, and 90 percent. Most small businesses would welcome a significant increase in the threshold. Whilst the report stops short of making a clear recommendation, it would be particularly welcomed by small business operating near the GBP85,000 (USD112,000) threshold (or 'cliff edge'), some of whom choose to earn less income in order to stay outside of the VAT regime."

Another mechanism that would benefit businesses, he said, is to replace the current VAT import process to ease cash-flow pressure on businesses. "Again the report stops short of making it a recommendation, but having a VAT return mechanism to account for VAT on imported goods, rather than a cash payment and reclaim mechanism, would be very helpful for companies," he said. Such would enable companies to immediately set off their input tax credits against any output tax liability, removing the need for a company to remit VAT on imported goods and later obtain a refund. "This is hopefully something that HM Revenue and Customs (HMRC) and HM Treasury will consider as part of the Brexit process," said McGinness.

McGinness agreed with the report that HMRC could improve its communication with taxpayers and advisers, and remove uncertainty and ambiguity in its reviews and appeals process. He said: "Publishing anonymized rulings on its website would be incredibly useful for taxpayers as it levels the playing field. Alternative Dispute Resolution (ADR) is also a good option for clients if a dispute is at an impasse with HMRC."

Charities are another area that would gain from a simplification of the VAT treatment for grants, according to McGinness: "The comments made in respect of simplifying matters for charities are positive, as grant funding applications can cause serious issues for charities if there is an unexpected VAT cost. However, there is a risk that a root and branch review of rates could result in some of the charity exemptions and zero-ratings disappearing, which could result in an extra VAT cost for charities."

The report indicated that partial exemption (that is, where businesses have some income that is exempt from VAT and some that is taxable) could be simpler, suggesting that the minimum level should be adjusted each year or changed to be a fixed percentage of turnover. Other suggestions include applying a fixed period of approval and having different frameworks for different sectors, McGinness said.

McGinness said a proposed overhaul is positive news: "Small businesses struggle with partial exemption calculations, and the current concepts, coupled with low thresholds, result in an onerous amount of time being spent, with increased risk for businesses and charities. A simplification of the system would be good news."

He opined that it may be years down the line before any concrete changes can be made to the UK VAT system: "This may be a benefit that Brexit could bring to UK taxpayers. The UK Government is currently limited in what it can do to modernize and simplify VAT, as the rules are set at a European level."

TAGS: tax | small business | business | value added tax (VAT) | United Kingdom | HM Revenue and Customs (HMRC) | charities | HM Revenue and Customs (HMRC) | Europe | Other | Tax

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