On 7 November 2017, the Office of Tax Simplification (OTS) published its report on potential “simplifications” to the UK VAT system.

The report contains a number of recommendations but the “dominant issue” coming out of the review is the VAT threshold which, in the UK, is the highest in the EU. According to the OTS the current VAT threshold creates a “significant cliff-edge”, distorting behaviour and resulting in a bunching of businesses just below the current £85,000 turnover level. The report looks at both lowering and increasing the current threshold, and the pros and cons this might entail.

The report also considers a number of technical areas such as partial exemption, the capital goods scheme and the option to tax land and buildings.

Not surprisingly, Brexit looms large over the findings of the OTS in this area. The report states that “Brexit may present an opportunity to consider areas which could be clarified, simplified, or just made easier…this review does not embrace aspects of the VAT system which are part of the Brexit negotiations, such as financial services…”.

The report can be viewed here