VAT post-Brexit part II: Re-writing the VAT Act
In the second of a trilogy of pieces around the implications of Brexit for VAT, Les Howard examines what can be done to improve on the current VAT Act. To read the first piece click here.
Let’s use this opportunity to re-write the VAT Act 1994. As part of that re-write, some areas of VAT liability are urgently in need of revision, clarification and simplification.
This process should include private sector assistance. Many taxation and accountancy professionals have excellent experience and understanding of VAT liability. In contrast, HMRC staff have been increasingly withdrawn from face-to-face engagement with taxpayers, so they lack the detailed understanding of the difficulties faced by taxpayers, and the complexities of current legislation.
For example, the financial services and insurance exemptions have seen much litigation in recent years, in relation to the nature of those services, and also the liability of intermediary services. A simpler (and slightly wider) exemption could be drafted. Given the current debate over the possible relocation of some financial services businesses to the continent, and whether we can retain ‘passporting,’ if the UK’s exemption were slightly wider (and slightly clearer) it might help retain such businesses in the UK.
On the face of it, the widening of the exemption might reduce the tax take. But exempt businesses cannot recover VAT input tax, so the reduction is mitigation by such irrecoverable VAT (hopefully HMRC have statistics on the quantum of such irrecoverable VAT).
Zero rating for food also needs reviewing. Perhaps the VAT rate could reflect the negative health effects of certain foods; a higher rate for high-fat and high-sugar foods, etc. Hot and cold takeaway food is still an unwelcome complication for some, so that also warrants some clarification. Other EU member states actually operate much simpler rules for such supplies.
I would also like to see some provision of the reduced rate for refurbishment of buildings owned by charities, in a similar way to that applied to domestic properties. I have seen the existing standard rate to be a severe deterrent on charities investing in their properties.
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Hi, I am a VAT Consultant, part of the team at vatadvice.org We are based in Cambridgeshire. We work largely with charities but also advise a range of commercial organisations.
I have over 30 years experience in VAT, and am currently also a part-time member of the Tax Tribunals.