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VAT post-Brexit part II: Re-writing the VAT Act

8th Aug 2016
VAT Consultant vatadvice.org
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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 In contrast, HMRC staff have been increasingly withdrawn from face-to-face engagement with taxpayers, so they lack the detailed understanding of the difficulties faced by taxpayers, and the complexities of current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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By Michael C Feltham
10th Aug 2016 18:58

Since Heath The Teeth only introduced VAT - 1973 - in order to comply with the tax terms of the Treaty of Rome 1957 ( A percentage of ALL Vat collected goes straight to what is now the EU) and it replaced Purchase Tax which was enacted to tax luxuries, mainly, all apart from Government profligacy, then there is no further need for VAT.

I well remember Heath's weasel statement: "One Simple Tax" (I bloody wish!) at a "low" rate, to replace the complicated Purchase Tax...

Ah me, I remember it well!

Except...

Purchase tax only applied to NEW items and never applied to LABOUR! Never applied to any second hand items bought and sold by way of trade.

Fast forward: now we suffer an iniquitous levy upon everything bought and sold and supplied: including labour output. If you like it is yet a further tax upon enterprise and endeavour. But not, of course naturally the hallowed City and bankers and financial services, and insurance! Oh no, perish the thought!

Consider: a self employed sole trader micro-sized zero business (i.e. One Man Band). As his business expands thanks to his enterprise, sweat and hard work, then he quickly exceeds the limit for mandatory VAT registration.

Overnight, his charge out rate to his private (i.e. Non VAT Registered) customers rockets by 20%!

I do wish I could hike MY revenue by 20% and still have any clients the next morning!

Core problem is, with say a heating and plumbing biz, much of his final bill comprises materials. With the state of present prices, it doesn't take many jobs to exceed the limit!

Result, the honest law abiding guy is in competition with the VAT avoiding pounds note man up the road.

And Government pontificates over tax avoidance!

Give me strength...

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