Significant increase to VAT registration threshold would be welcome - Saffery Champness

Accountancy firm Saffery Champness says that it welcomes the majority of findings made by the Office for Tax Simplification (OTS) in its report on the UK VAT system to consider whether or not this was working for businesses and to identify opportunities to simplify the structure.

VAT director at Saffery Champness in Edinburgh, Sean McGinness, said: “The report recommends that the Government should consider increasing or reducing the VAT registration threshold or introducing a ‘smoothing’ mechanism to step the payments in the first three years to 70 per cent, 80 per cent and 90 per cent.

“Most small businesses would welcome a significant increase in the threshold. Whilst the report stops short of making a clear recommendation, it would be particularly welcomed by small business operating near the £85,000 threshold (or ‘cliff edge’), some of whom choose to earn less income in order to stay outside of the VAT regime. Another mechanism that would benefit businesses, according to McGinness, is to replace the VAT import process.

“Again the report stops short of making it a recommendation, but having a VAT return mechanism to account for VAT on imported goods, rather than a cash payment and reclaim mechanism, would be very helpful for companies. This is hopefully something that HMRC and HM Treasury will consider as part of the Brexit process.”

McGinness agrees with the report that HMRC could improve its communication with taxpayers and advisers, and remove uncertainty and ambiguity in its reviews and appeals process.

He said: “Publishing anonymised rulings on its website would be incredibly useful for taxpayers as it levels the playing field. Alternative Dispute Resolution (ADR) is also a good option for clients if a dispute is at an impasse with HMRC.”

Charities are another area that would gain from a simplification of the VAT treatment for grants, says McGinness.

He explained: “The comments made in respect of simplifying matters for charities are positive, as grant funding applications can cause serious issues for charities if there is an unexpected VAT cost. However there is a risk that a root and branch review of rates could result in some of the charity exemptions and zero-ratings disappearing, which could result in extra VAT cost for charities.”

The report indicates that partial exemption (ie where businesses have some income that is exempt from VAT and some that is taxable) could be simpler and suggests adjusting the minimum level to increase over years and/or changing it to a fixed percentage of turnover. Other suggestions include applying a fixed period of approval and having different frameworks for different sectors.

McGinness says a proposed overhaul is positive news, he continued: “Small businesses struggle with partial exemption calculations, and the current concepts, coupled with low thresholds, result in an onerous amount of time being spent, with increased risk for businesses and charities. A simplification of the system would be good news.”

McGinness says that it may be years down the line before any concrete changes can be made to the UK VAT system.

He added: “This is one benefit that Brexit could bring to the UK taxpayers, as the UK Government is currently limited in what it can do to modernise and simplify VAT as the rules are set at a European level.”