Independent VAT Consultant
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VAT: Reviewing the building blocks

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Can HMRC simplify the complicated VAT rules for exemption of land? Neil Warren examines the call for evidence on this important topic.

2nd Jul 2021
Independent VAT Consultant
Columnist
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HMRC’s consultation proposal to ‘simplify the VAT land exemption’ is very welcome. But, as we all know, there are two great risks with tax and simplification.

Complification: New legislation is usually more complicated than its predecessor – ‘complification’ being the outcome. I always smile when I think of the bold attempt to simplify the VAT rules for caravan sales back in 2012, which ended with three rates of VAT instead of two.

Unfairness: A big tax bill for certain businesses or organisations that could be a massive burden for their future trading growth.

Horror suggestion

HMRC is only welcoming ideas at this stage but one proposal in para 3.3.1 is very worrying:

“Make most supplies subject to VAT and exempting specific transactions.”

The report specifically mentions exemption only being maintained for residential and charitable land supplies. In other words, if the starting point is that all land supplies are VATable at 20%, there would be no need for the option to tax legislation, and it could be withdrawn.

The option to tax rules means that exempt supplies made by the opter become standard rated, enabling input tax to be claimed on related expenses. There is no doubt this would be a great boost for the simplification argument – but what about fairness?

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