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The Office of Tax Simplification (OTS) has published its first report on Value Added Tax (VAT) and presented to parliament a range of proposals which can help simplify VAT by reassessing the thresholds and the Administration of VAT.

It was announced at the Autumn Budget 2016 that a simplification review into the VAT system was requested. The report took into account the experiences of businesses, advisers and others who deal with VAT and it took into account any ideas they have on simplifying the system.

This tax which annually raises around £120bn is based on a complex structure, with the UK having the highest threshold of £85,000 in the EU, where the average is £20,000.

The review considers three key aspects:

  • The issues and impacts involved if the VAT registration threshold were either higher or lower than at present.
  • Administrative changes which could help businesses, advisers and HMRC better achieve their common aim of easing friction points in the system.
  • The extent to which the definitions of the types of supply which are currently relieved from VAT create complexity for businesses and administration.

VAT Threshold

As the UK has the highest VAT threshold, it is evident that this discourages businesses from maximising their full potential, which then adversely impacts economic growth. The report gathers evidence which shows that businesses intentionally reduce business activity to avoid hitting the higher threshold.

Reducing – The report discusses lowering the threshold which will then bring a few thousand businesses under the band, requiring them to register, which will then increase their compliance costs.

Increasing – If the threshold is increased by a small amount, for example, £2,000, approximately 12-15,000 fewer businesses would be required to register. This would also contribute to some administrative savings for the companies.

The report continues to discuss how significantly changing the threshold could also affect these businesses, as well as reducing the administration costs.

At Gorilla Accounting, we offer one all-inclusive package for just £85 + vat per month, which fulfils all your essential personal and business needs. Formore information, get in touch with our New Business Team on 0330 024 0406 or emailinfo@gorillaaccounting.com.

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