VAT rules need to be updated, Treasury advisor insists

The current VAT system is in sore need of reform, the Office of Tax Simplification (OTS) has argued.

The body, an independent advisor to the Treasury, has suggested that the current arrangements have become increasingly complicated since VAT was first introduced in the UK almost half a century ago.

Officials believe that streamlining the system – or in their own words remove “the barnacles of complexity” – would be a great benefit to businesses.

Part of the problem is that the tax has evolved over time and some of its apparent inconsistencies date back to historical decisions.

Indeed some of the rules are informed in large part by the previous purchase tax regime, which was replaced by VAT in 1973.

Although John Whiting, an OTS tax director, has acknowledged that making recommendations as to specific rates falls outside the organisation’s remit, it believes that the various rates available added to confusion.

He argues that it makes some sense to re-examine the rules now, given that Britain’s departure from the European Union is likely to allow for more flexibility in reshaping the regime.

The VAT registration threshold, determining the level of turnover at which a business becomes liable for the tax, could also be reviewed.

At present the threshold stands at £83,000 in Britain, whereas most countries have a figure around a quarter this amount.

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Adam Cramer

Adam Cramer

Partner at Wilson Wright