Should the VAT threshold be increased post-Brexit?

First introduced by France in the 1950s, adoption of VAT became a stipulation of joining the EU, which the UK adopted upon becoming a member in 1973. With Brexit negotiations currently underway, it is unclear what form VAT will take in the UK.

The Association of Accounting Technicians (AAT) conducted a survey on the details of UK VAT, revealing a third of members support a significant raise in the threshold.

Should the VAT threshold be raised or lowered?

Since its introduction, the threshold at which VAT is charged has steadily increased to £85,000 in the UK – the highest in the EU. VAT thresholds differ wildly across the globe – from £500,000 in Singapore to £0 in Spain, Italy and Sweden.

According to the AAT 2017 VAT Survey, 36% of AAT members support a greater increase of the VAT threshold, compared with only 9% of members supporting a reduction to £0. Meanwhile, 33% of members responded they would like to see the current £85,000 threshold maintained.

While only a handful wanted to see the UK threshold reduced to £0, 18% of respondents supported a reduction to the EU average of £25,000. Furthermore, 5% wanted to see a reduction to the personal allowance, which is currently £11,500. This goes against current Conservative plans to increase personal allowance to £12,500 by 2020.

Phil Hall, AAT head of public affairs & public policy, commented: “Whilst the single largest group of AAT members would like to see a very big increase in the VAT threshold, our survey has also shown that a similar number would welcome a reduction, and another third believe that the existing £85,000 threshold should be retained.”

Other VAT concerns

Along with clarifications about thresholds, there is the need for simplification in the VAT system – with 36% of AAT members saying they would like to see boundaries of VAT rates to be examined or simplified.

This is being acted upon by the government, who has tasked the Office of Tax Simplification (OTS) with conducting a simplification review into the VAT system.

Hall added: “VAT thresholds, like VAT rates, administration and penalties, are complex issues that often divide opinion. It’s therefore imperative that the OTS ensure any proposals for reform are thoroughly considered and can command solid levels of support. We are pleased that the AAT 2017 VAT Survey can play a part in helping the OTS achieve this.”

The survey also revealed 30% of respondents support scrapping the exemption schedule.

Only 11% supported maintaining the system as is, showing there is ample work to be done.

Respondents were split in thirds on the impact of Making Tax Digital (MTD) on VAT – with 34% believing MTD will not make VAT rules redundant, 30% believing they will, and 35% responding that they do not know.

In the meanwhile, here are 5 ways businesses will benefit from a Brexit VAT health check.

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