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ICAEW response to OTS report on VAT

Tuesday 7 November 2017, Commenting on the report from the Office of Tax Simplification (OTS) which makes a number of recommendations on VAT, Frank Haskew, Head of ICAEW Tax Faculty, said:

“VAT was introduced in 1973 as a ‘simple tax’. Since then it has become vastly more complicated to administer and is a significant burden that falls disproportionately on smaller businesses. It was for this reason that the limit was raised substantially in the early 1990s, and the current VAT registration limit of £85,000 is the highest in the EU. In 2015 the Government confirmed that ‘We believe that the UK’s current registration threshold achieves a reasonable balance between competing interests and reduces the administrative burden on the smallest businesses.’

The OTS report sets out the advantages and disadvantages of raising, lowering or maintaining the current threshold and suggested that VAT rates be reviewed.

Frank concluded: “Although the current VAT registration threshold of £85,000 is high, it is in practice a major simplification measure for smaller businesses. We believe it should be retained at its current level or consideration be given to increasing it further, perhaps with measures to ease businesses into VAT to avoid the ‘cliff edge’ effect.”

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