When it comes to the UK’s VAT system, few would disagree that complexity is rife and in need of addressing. But simplification of VAT is a tough nut to crack. 

At ICAEW’s recent How to Fix VAT conference, the appetite for reform was clear. In a straw poll, 95% of delegates agreed that the VAT system needs simplification, but views diverged on how to achieve it: 63% supported a complete overhaul, 24% favoured incremental changes and 13% were unsure. However, the challenges of simplification and the political sensitivity surrounding changes to VAT should not be underestimated.

A lively panel discussion at the conference brought together VAT experts across different spheres of experience to thrash out some of the main barriers to simplification. The panel was chaired by Ruth Corkin, Principal Indirect Tax at Hillier Hopkins, and panellists included Rebecca Porter, CEO of The VAT Team, Ian Broadhurst, Deputy Director, International VAT, HMRC and Dennis Lui, CEO of Singapore-based Tax Academy. 

Clear guidance to clients

The panel acknowledged the challenges that advisors face in providing clear guidance to clients due to the complexity of VAT legislation. In particular, the subjective nature of definitions within the VAT legislation complicates compliance and creates uncertainty for taxpayers. It was commented that advisors spend half of their time working out what they think the legislation says.

Lui explained the advantages of Singapore’s more progressive VAT system. Designed with simplicity in mind, the Singaporean approach requires GST-registered businesses to charge and account for GST at 9% on all sales of goods and services in Singapore unless the sale can be zero-rated or exempted under the GST law. 

This approach includes a system of transfers and vouchers to mitigate the impact of taxes on lower-income households. Its example highlights interesting lessons for those jurisdictions with tax simplification as a goal.

Lack of public support

The panellists identified a number of key barriers to simplification in the UK, including a lack of public support. They agreed that education is key if UK VAT is to be reformed. People need to understand what the problems are and how they can benefit from change. Simplifying definitions and regulations could help the general public and non-VAT experts navigate tax laws more easily. 

It was argued that political issues significantly influence VAT reform decisions in the UK, and that politicians needed to be educated about VAT too. VAT raises much needed revenue for the UK and so political buy-in is key. 

There was consensus that the best way to approach the issue of VAT reform is to have an informed debate, with contributions from lots of different viewpoints.

Take politics out of the equation

Lui said that in an ideal world, politics should be taken out of the equation when designing a VAT system: “But as technical specialists, as experts, as academics, we should have some kind of consensus on what a good VAT system looks like. And then we can start by discussing it based on facts.” 

Meanwhile, it was noted that the potential for fraud and tax avoidance is an important consideration to any potential changes to tax regulations. In the current environment, it is particularly important that any changes take into account the possibility of giving rise to fraud.

Shared understanding of the issues

Reflecting on the discussions, Ed Saltmarsh, Technical Manager, VAT, ICAEW, said: “VAT simplification is something nearly everyone agrees is necessary, but the path to achieving it is far from straightforward. The conference made clear that the complexity of the current system creates real challenges for businesses, advisers and policymakers alike. 

“If we want meaningful reform, we need to start by building a shared understanding of the issues through better education, clearer communication and more inclusive debate.

“International examples like Singapore show that simplicity and fairness can coexist, but any UK reform must navigate political sensitivities and revenue pressures,” he continued. “What’s needed now is the courage to challenge the status quo and the collaboration of experts, government and the public to shape a VAT system that works better for everyone.”

• For more on how to fix VAT, visit ICAEW’s dedicated hub.