The Office of Tax Simplification (OTS) have published a review of VAT, 'Value added tax: routes to simplification'. The European Commission has also published an impact assessment on simplification.

OTS

The OTS’ first review of VAT , Value added tax: routes to simplification, include 23 recommendations, 8 core recommendation and 15 additional administrative and technical recommendations.

The core recommendations were:

  1. To review the registration threshold. The cliff-edge approach causes bunching and either a smoothing or change in the threshold may help with this. The UK are the highest threshold throughout the EU and in the OECD, so do not be surprised if there is a reduction in the threshold.
  2. HMRC need to improve their guidance to reduce uncertainty. One of the additional recommendations was they update it quickly!
  3. There should be less uncertainty on how penalties will work for voluntary disclosures of errors. Although small errors can be corrected on the VAT Return, HMRC should still be notified that the error occurred. This can cause confusion.
  4. Review the reduced rate, zero rate and exempt rate schedules and work to simplify. One of the additional recommendations was that they could list items based on customs codes to make it easier to identify what rate applies.
  5. The partial exemption de minimis limit should be increased and increase with inflation.
  6. The way in which special methods are applied for and approved should be simplified and an additional recommendation was that they should have a limited lifespan to keep them up to date.
  7. HMRC should consider whether the Capital Goods Scheme should apply to anything other than property and the property threshold should be reviewed. An additional recommendation is that some form of de minimis should apply to reduce the number of adjustments required.
  8. Option to tax applications and record keeping could be moved online.

European Commission

Not long before the OTS released its report on simplifying aspects of UK VAT, the European Commission issued an impact assessment concerning reforms for the EU VAT system, which were first considered in the 2016 VAT action plan, ‘Towards a single EU VAT area – time to decide.

The European Commission are seeking agreement on four fundamental principles, which will be the cornerstones of a new definitive single EU VAT area:

  1. Tackling fraud: VAT will be charged on cross-border trade between businesses rather than those supplies being treated as exempt (or outside scope for UK VAT).
  2. One Stop Shop: more one stop shops (like the Mini One Stop Shop) will be introduced for cross-border sellers. This will allow them to declare and pay VAT in their own language under home country rules. Member States will then settle the payments between them.
  3. Greater consistency: a ‘destination’ principle will be used. VAT will be paid to the Member State of the final consumer at that Member State’s rate. This is how the place of supply rules work for E-services.
  4. Less red-tape: VAT registered businesses will be able to use their own country invoicing rules even for cross-border transactions and the need for EC Sales Lists (ECSL) will be removed.

The European Commission’s proposal also introduced the notion of a Certified Taxable Person: a category of trusted business that will benefit from much simpler and time-saving rules.

Links

Registering for VAT

Penalties (VAT)

Correcting VAT errors

Partial exemption & input VAT

Capital Goods Scheme

Opting to tax land and property

Towards a single EU VAT area – time to decide

Place of supply: Mini One Stop Shop

Place of supply: service

Place of supply: goods

What constitutes a valid VAT invoice?

EC Sales Lists (ECSL)

External links:

OTS review, Value added tax: routes to simplification

European Commission press release

 


 

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