Tax simplification unit has VAT in its sights

A tax unit whose recommendations on IR35 led to changes in the way HMRC administers the rule will reportedly turn its attention to another levy that affects many contractors -- VAT.

So having reviewed IR35 in 2011, and corporation tax in July 2017, the Office of Tax Simplification will next look at reforming Value Added Tax, a national newspaper claims.

Three options are due to be outlined by OTS “shortly,” reported the Financial Times, notably -- raising the registration threshold; reducing it, and giving help to firms once they cross it.   

Disclosed to the paper by OTS director Paul Morton, the review appears to represent the first time that VAT has been looked at -- as a whole -- since its introduction in 1973.

For contractors however, the VAT rules many of them abide by were revamped in April, following the introduction of a ‘limited costs’ trader category on the Flat Rate Scheme.

It is the differing rates of VAT and its varying treatment (there are four different types) which was said to be behind the need for the tax simplification unit to step in.

Morton also disclosed that the registration threshold would be a central focus, apparently because traders go on holiday or shut for a month solely to avoid their turnover crossing it.