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Lowdown
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9am Lowdown: VAT overhaul, corporation tax & IR35

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1st Mar 2017
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Good morning and welcome to today's lowdown which features a new OTS report on the complexities of VAT and warnings that the planned IR35 changes could result in an NHS exodus.

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OTS explores VAT complexities

The Office of Tax Simplification (OTS) has suggested that an overhaul of the VAT system could benefit businesses.

As reported by the FT, the OTS unveiled a progress report on its review of VAT. The report identified a number of areas of complexities and quirks that have been attached to VAT over its 44 year history. For example, the OTS cited how gingerbread is zero rated unless it has chocolate decoration.

The OTS also questioned the VAT threshold because of “an unusual number of businesses reporting turnover at levels just below the threshold”.

Setting out the basis for the report, the OTS said in the foreward: “There are instances where the UK regime is more complex than in some other EU states (for example, the extent of zero-rating). Some non-EU states have made specific design choices to avoid the complexity we face in the UK, including a much broader tax base, a single rate, fewer exemptions and formal rulings. On the other hand, some aspects are simpler (for example, the UK VAT return).”

You can join the discussion on this report and bringing the VAT threshold down over on Any Answers.

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Lower corporation tax will 'prove more costly'

Lower corporation tax would not offset the shock of a hard Brexit, writes JP Morgan.

According to Business Insider UK, Allan Monks, an economist at JP Morgan, said: "The UK’s corporate tax regime already looks competitive both historically and internationally, further cuts are likely to prove more costly to the chancellor than before, and the tax rate would, in theory, need to turn negative to combat the shock of an ultra-hard Brexit."

He also argues that the current 20% corporation tax level has “coincided with a decline in corporate tax recipts”. He writes: “This is very different to the 1980s, when cuts to corporation tax cuts coincided with a large increase in corporate revenues relative to GDP. At present, the OBR estimates that each 1%-pt drop in the corporation tax rate is likely to lower corporate tax revenues over three years by around £2.4bn—or 0.1% of GDP."

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IR35 changes sparks NHS exodus fears

Hundreds of thousands of public sector workers could leave sectors like social care and the NHS once the planned IR35 changes are introduced in April.

The Guardian has seen local government analysis that shows the new two tier system could lead many workers terminating work for the public sector and creating a major skill shortage in critical areas.

Jolyon Maugham QC, a leading tax barrister, expressed alarm at the consequences of the changes: “I was told by a very senior Treasury source that the government wouldn’t have got the proposals across the floor of the house if they introduced them for the private sector too. This change is going to have the effect of driving up costs in the public sector

Replies (2)

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Chris M
By mr. mischief
01st Mar 2017 15:30

The IR35 changes are yet another example of the work of the Numpty Department. By definition, generating more tax from, for example, an NHS Trust is a zero-sum game for the public sector. For every £1,000 or tax HMRC gets, the NHS is £1,000 worse off.

An utter waste of everyone's time.

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Replying to mr. mischief:
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By sawebs
26th Mar 2017 08:53

Yes it's so obvious to everyone except HMRC and Hammond and May. Unfortunately there is no way to make them listen, they must be putting their fingers in their ears and saying "LaLaLa not listening to you!"
All we get is statements from an anonymous "government spokesman" with some naive, child-like comment like "people doing the same job should pay the same tax". Oh yeah, when one has job security, pension and all the perks of employment while the other one has no perks and pays for flights every week from Edinburgh to London for example, spends £1000 a month on hotels etc, pays for accountancy, insurance etc and rarely sleeps at home during the week. Oh yeah, really fair numpty!

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