On 7 November, the Office of Tax Simplification (OTS) published its first report on VAT, which included a range of proposals for simplifying the tax. Amongst the more eye-catching proposals were that:
- the Government should examine the current approach to the level and design of the VAT registration threshold, with a view to setting out a future direction of travel for the threshold, including consideration of the potential benefits of a smoothing mechanism. The OTS observed that the current VAT registration threshold of £85,000 is the highest in the EU. It also noted the distortive effects that the "cliff-edge" threshold produced, with bunching of businesses with turnover just below the threshold, and a disincentive to expand above the threshold, particularly businesses with lower levels of costs relative to supplies to consumers, such as labour-intensive businesses, and businesses operated by sole proprietors. The OTS discuss the possibilities of significant reductions and increases in the threshold, as well as the possibility of smoothing the distortive effect of the threshold;
- HM Treasury and HMRC should undertake a comprehensive review of the reduced rate, zero-rate and exemption schedules, working with the support of the OTS ; and
- the Government should consider whether capital goods scheme categories other than for land and property are needed, and review the land and property threshold.
These are interesting areas for debate and, in some cases, go beyond suggestions for simplification of the law and stray into proposing major policy shifts – particularly in the case of the registration threshold. It is also interesting to see how, if at all, the progress of these proposals fares during and after the current Brexit negotiations.