The ongoing discussions surrounding VAT Reform in the UK have never been more pertinent. With an intricate system that currently taxes merely half of all consumption, the necessity for reform is clear ...
Without proper VAT reform, the Treasury is losing billions in potential revenue!
VAT has funded myriad essential services like hospitals and schools over the past 50 years, but as many accountants and economists say, the system is now outdated and cumbersome.
"One of the most significant challenges facing the current framework is its complexity!"
Businesses are often left to navigate a web of exemptions and varying rates, making compliance not only burdensome, but also risk-prone. I've always said that the management of such a complicated system poses significant risks for enterprises tasked with collecting VAT on behalf of the government. This complexity not only hampers business efficiency, but also stifles growth, as companies struggle with the administrative overhead.
Digitalisation is another critical area where the UK lags behind its global counterparts. Nations across South America and Asia have made significant strides in implementing real-time reporting and e-invoicing, whereas the UK's VAT landscape remains relatively archaic. This lack of technological transformation increases compliance costs for businesses and restricts HMRC's capacity to efficiently collect taxes. As a result, the Treasury is losing billions in potential revenue.
"Brexit has opened the door to a unique opportunity for VAT reform!"
Freed from the constraints of EU VAT harmonisation, the UK could design a more uniform and contemporary consumption tax system tailored to its specific economic landscape. However, the path to achieving this VAT reform is fraught with political realities. Change on this scale will be challenging, underscoring the resistance that even modest adjustments can encounter, as illustrated by the backlash surrounding the 'pasty tax'.
It is clear to me that while wholesale changes may be difficult, an evolutionary approach could yield effective outcomes. I would suggest targeting specific areas for improvement, such as revisiting VAT exemptions, reassessing the registration threshold, and working to close the 'VAT gap' which is the chasm between expected and actual tax revenues.
By embracing the possibilities presented by post-Brexit freedoms and advancements in technology, we can create a VAT framework that is not only more efficient and simpler, but also strategically positioned to capitalise on future growth.
"Failure to act could risk crippling businesses with outdated compliance requirements!"
As the call for a simpler, more efficient VAT system grows louder, the necessity for reform is increasingly apparent. VAT reform offers a vital opportunity to bolster public revenue and support vital services.
I believe the journey towards VAT reform must begin now.
Until next time ...
ROGER EDDOWES Business Godparent
Would you like to know more?
If anything I've written in this blog post resonates with you and you'd like to discover more about VAT reform, it could be a great idea to call me on 01908 774320 and let's see how I can help.
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Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach.
Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.
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