VAT - 30.11.2017

Bad news for smaller businesses?

Report. On 7 November 2017, a report was published by the Office of Tax Simplification (OTS) listing a number of recommendations for modernisation of the VAT system in the UK (see The next step ). It cites examples of why reform is needed, including the humourous observation that a gingerbread man with chocolate trousers is subject to VAT, but not if it has chocolate eyes!

Serious. On a more serious note, the focus of the OTS is on the relatively high compulsory registration threshold (£85,000) compared with the EU average of £20,000. The report indicates that reducing the threshold to £43,000 could raise an additional £1.5 billion each year. Whilst this is merely a suggestion at this stage, a tax carrot of that size is unlikely to go completely ignored by the government.

Making tax digital. If a change were made from April 2019 there could be additional impacts. For example, a business with a turnover of £50,000 would not only have to deal with VAT registration, and possible additional compliance costs, but also have to pass the VAT cost onto its customers - increasing prices by 20%. Perhaps more worryingly is that its compliance date for making tax digital (quarterly reporting etc.) would immediately be accelerated by twelve months. This would potentially present a very short space of time to prepare.

Other points. Some more positive points were included in the report, including the possibility of increasing the partial exemption de minimis limits. This would be beneficial for low income businesses that make a mix of taxable and exempt supplies.

For a link to the Office of Tax Simplification report, visit http://tipsandadvice-vat.co.uk/download (VA 08.02.01).