Future of VAT in the UK

Background

We are at an unprecedented moment for change to the UK VAT system. COVID-19 has brought unprecedented challenges to the economy; the end of the Brexit transition period brings new opportunities to change the regime; and HMRC’s aspiration to move towards real-time reporting by 2030 provides a possible vision for the future of tax. The convergence of these issues means there is a big decade ahead for the UK VAT system. This brings both opportunities and challenges and at EY we want to be at the forefront of shaping the regime as it develops.

As we begin to do that, we are prioritising listening. We are listening to clients, to sector bodies and a wide range of stakeholders through our Future of VAT in the UK campaign.

Speaking personally, I want to use this campaign to give the charity sector an increased voice. This will be through amplifying the existing great work on VAT and its impact across the sector and by seeking new input from across the sector.

Issues

It is well known that the VAT rules for charities deliver several, perhaps unintended, burdens, including irrecoverable VAT. Perhaps less well known is the potentially disproportionate impact of simplification or a reduction in the VAT registration threshold. Looking to the future, the impact of changes in the way services are delivered, including e-publications and advertising, could have a negative impact on the sector if the VAT rules don’t keep up.

There are also opportunities for the Government to target support for the charity sector and promote charitable policy objectives through the VAT system. We want to hear your thoughts and ideas about what might be possible.

Asks

If we want to see positive changes in the charity sector, then your voice needs to be heard and we can give you that platform by completing our Future of VAT survey. We estimate that it should take between 15 and 20 minutes for you to complete and will close on Monday 31 May 2021. Alternatively, speak to your CTG contact or to me to explore your experience and ideas on the future of VAT.

Dermot Rafferty, Senior Manager and Not for Profit lead at EY (drafferty@uk.ey.com)

 

To help members prepare a response we have listed the survey questions below.

  • Do you believe that the current UK VAT system is fit for purpose?
  • To what extent do you agree that Brexit is an opportunity to reform the UK VAT system?
  • What are the three biggest VAT challenges currently facing your business?
  • In the last two years, have the UK VAT rules (including uncertainty in the application of the rules) been a barrier to delivering or expanding your business?
  • How has the cost of your VAT compliance changed over the last five years? What do you expect in the next five years?
  • How has the profile of VAT changed amongst your management/board changed over the last five years? What do you expect in the next five years?
  • In your experience, how does the UK VAT system compare to other jurisdictions in which you operate
  • Please indicate the approximate date of your last UK VAT compliance check.
  • How many VAT checks/inspections have you had in the last four years?
  • Which of the following areas of the UK VAT system are most in need of reform? Please indicate for each option to what extent you agree that reform is needed.
    • Invoicing
    • VAT recovery (including import VAT)
    • Making Tax Digital
    • Partial exemption
    • VAT registration threshold
    • Standard rate (rate change)
    • Reduced rate
    • Zero rate
    • Exemptions
    • Electronic services
    • Capital Goods Scheme
    • VAT schemes (e.g. flat rate schemes, retail schemes etc)
    • Land and property
  • Do you support a change to the current UK VAT registration threshold (£85,000)?
  • What change to the current UK VAT system would offer the greatest cost savings for your business and why?
  • Please indicate how important VAT is relative to other taxes in your business?
  • How important do you expect VAT to be relative to other taxes in your business in five years’ time?
  • How would you rate the quality of communication from HMRC in respect of VAT?
  • What improvements would you suggest for HMRC VAT communications and guidance?
  • How achievable is HMRC’s vision of real-time reporting for VAT by 2030?
  • What will be the biggest challenge for the UK implementing real-time reporting for VAT by 2030?
  • How long do you think it could take for your business to prepare for real-time reporting?
  • How much do you estimate it could cost your business to become ready for real-time reporting?
  • Would you support a simplification of the UK VAT system whereby the standard VAT rate was decreased in exchange for a reduction in the scope of zero-rating and/or reduced rating? Please indicate the strength of your support.
  • To what extent would you support more compliance checks by HMRC in return for greater clarity over your VAT affairs?
  • To what extent would you support the implementation of split payments for the collection of VAT?
  • To what extent would you support the extension of the domestic reverse charge e.g., to reduce cash flow challenges and simplify aspects of VAT?
  • Would you support the wider use of temporary zero-rating or reduced VAT rates for specific purposes? Please indicate the strength of your support.
  • How could the UK VAT system be used to promote sustainability/tackle climate change?
  • Which area of the UK VAT system do you think offers the greatest opportunity for reform and how would you reform it?
  • To what extent would you support simplifying the tax system by incorporating other indirect taxes such as Air Passenger Duty, Gaming Duties, Insurance Premium Tax, and Soft Drinks Industry Levy into the UK VAT regime?
  • To what extent would you support replacing VAT with another indirect tax, e.g., sales tax?
  • Please provide any other comments regarding the future of VAT in the UK

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