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By Ben Stupples
The U.K. Treasury’s tax adviser will publish its review of the country’s value-added tax laws in the “next few weeks,” increasing scrutiny on the indirect levy at the center of the Brexit debate.
“The plan” for publishing the report “is for the next few weeks,” Paul Morton, director of the U.K.’s Office for Tax Simplification, told Bloomberg BNA Sept. 18.
In the report, a rare external review of the U.K.’s VAT laws, there is work on the levy’s “registration threshold, and a lot of other areas and points of details for major work,” he added.
Commissioned by Chancellor Philip Hammond at the government’s 2016 fiscal update, the report from the OTS will come amid the U.K.’s preparations to exit the European Union in 2019. As the U.K. bases its VAT laws on an EU directive, the country can implement its own regime once it leaves.
But with the levy forming a key part of the U.K.’s public finances, Treasury officials have moved to quash speculation that the government will make radical changes to VAT laws post-Brexit.
The U.K.’s departure from the EU risks destabilizing the country’s tax base by creating opportunities for different levies on goods and services, Mike Williams, the Treasury’s business and international tax director, said at a June 30 conference at the University of Oxford.
At the moment, the U.K. is “significantly restricted” as an EU member on undercutting the standard VAT rate, he added. But “if those restrictions are removed, as of course they will be once we leave the EU, there will be significant pressure to apply different reduced rates.”
Set at a 20 percent standard rate, VAT is one of the U.K.’s biggest revenue raisers, bringing in 21 percent of the 566.8 billion pounds ($767.5 billion) of total taxes collected in the 2016-17 financial year. In general, the U.K. has four types of VAT: a standard rate, a reduced rate, or zero-rate, or a total exemption, with the normal rate levied on the sale price of most goods and services.
As part of its review, the OTS considered whether the U.K.’s VAT system was working and, to identify simplification opportunities. In addition, the Treasury’s tax adviser sought to examine simplifications for businesses over their VAT exemptions, and any recovery of the tax.
The U.K.’s VAT laws—applying to business with annual turnover above 83,000 pounds—have changed “dramatically” in complexity since their introduction in 1973 due to the country joining the European Economic Community, the OTS said in a Feb. 28 update on its review.
In the progress report, the OTS questioned the U.K.’s VAT threshold, identifying it as “significantly higher” than the average of around 30,000 euros among EU member states.
“Would it be less distortive if the U.K.’s threshold were lowered to bring in more businesses?” the OTS asked Feb. 28. “A key part of our assessment will be whether changing the threshold would have an economic impact, tackle any disincentive to grow and potentially create more jobs.”
As the OTS assesses whether lowering the VAT threshold would create more jobs, it’s equally seeking to create jobs directly through the recruitment of four tax professionals.
Applicants should have private sector experience, according to a Sept. 11 news release. They should be motivated by the challenge of driving U.K. tax system simplification, it added.
Made up of part-time and full-time workers, the OTS currently has a team that represents 10 full-time employees, Morton said. Any applicant can expect work to include a focus on personal tax savings and business allowances for tax deductions, he said.
“This is a formal process by which we recruit, but we always welcome new ideas that anyone wants to share with us and,” Morton added. Carrying out the review on VAT “has been a good experience as it’s a relatively old tax, and there hasn’t been much of a broad review on it before.”
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