In this year’s Autumn Statement, the Government announced that the Office of Tax Simplification (OTS) would be undertaking a review of VAT.

We were told, that “The review will not, in the main, be concerned with the VAT rate structure. Neither will it focus on issues likely to be significant in the context of the Government’s consideration of Brexit, such as the treatment of financial services, statistical reporting and EU cross border VAT rules such as MOSS. However, it will actively bear the Brexit context in mind in looking at opportunities to simplify VAT for the future”. This suggested that the review would be more administrative in nature.

However, the Terms of Reference, which have just been published, suggest that the scope is wider than expected and covers some areas of particular interest (see below). The overall aim of the review will be to develop recommendations for the Chancellor and the Financial Secretary as to how to reform and simplify aspects of the VAT system from both a tax technical and administrative stand point. Our experience working on employer-provided living accommodation is that HMRC will follow up OTS recommendations and take them very seriously.

The OTS will provide an update on its work and call for evidence in the spring of 2017. The OTS will then provide a report in the autumn of 2017 that:

• Provides analysis and evidence of the main areas where simplification could be achieved and the benefits that could result for businesses and in the administration of VAT
• Recommends specific steps that could be taken to secure simplification, and
• Considers and offers an initial evaluation of the impacts for businesses, HMRC and the Exchequer.

CTG fully intends to respond to this review, and hopes to set up a meeting with the OTS team to take discussion further.

Terms of reference

The review will consider how to help ensure the VAT system works appropriately in today’s (and indeed for tomorrow’s) economy. This will include consideration of:

• The issues and impacts which would be involved if the VAT registration threshold were either higher or lower than at present;
• The extent to which the definitions of the types of supply which are currently exempt from VAT, subject to a reduced rate or are zero-rated, fit the modern context, create complexity for businesses and administration;
• The level of demand and practical challenges arising from having a more widely available formal ruling system for businesses uncertain of a particular VAT treatment, for example in relation to TOGC;
• The potential for simplifying the operation of partial exemption methodologies, the option to tax and the Capital Goods Scheme with a focus on the impact on smaller businesses;
• Special Accounting Schemes;
• The general administration of VAT including the penalty regime and the appeals process;
• The opportunities available to align VAT more with other taxes (or vice-versa) as part of the Making Tax Digital plans;
• The relative significance and impact of the issues identified on businesses of different sizes or in different sectors.