Overview: Derek Allen, VAT's going on?

No one quite believes the government’s estimate of how much cutting and then
reinstating the VAT rate from 17.5% to 15% and then back. And if they don’t it’s
due in no small part to Derek Allen.

What’s Happened

Derek Allen is the indominatable director of tax at ICAS who has made it his
job to let the world and the profession know that the government sums on VAT
don’t add up.

It goes like this. During last year’s pre-Budget report, the VAT rate was
slashed as part of a fiscal stimulus to get the economy going in the face of a
vicious recession.

Suddenly everyone was working with new numbers. But government said dealing
with a new rate would cost £175m to implement and then around £125m to
reinstate.

It seems few are convinced of this and Allen has made it plain why. Speaking
to Accountancy Age last week, he said that members of ICAS’ specialist
VAT committee had polled clients and found the average cost of implementation
was £500. Extrapolate that number and you have a nationwide cost of around £850m
to put the cut in place. Assuming that reversing the cut will cost more puts a
price tag on going back to 17.5% of almost £1bn for UK business.

Wild sums? Allen thinks not. He says: ‘The government has placed a lower
figure on the cost to reinstate the rate due to businesses being familiar with
the process.

‘This cost has got to be higher due to the need to reprice goods and
services.’

In other words, government ­ or more specifically the Treasury ­ simply
hasn’t faced up to the true cost. This will in itself undermine the fiscal
stimulus intended by the measure, though it is hard to estimate by how much. It
will also diminish the reputation of the Treasury and its management of the
economy in the eyes of the profession. Allen, along with his ICAS colleagues,
has opened up a can of worms.

Allen is a former tax inspector whose stature makes for an imposing presence
in a room. He joined the taxman after spending some years studying bacteriology.
From the taxman he joined Arthur Anderson and from there he went on to ICAS,
where he became director of tax in 1989.

What happens next?

Allen will no doubt stand by his numbers, which might bring a little tension
to some of his work. Allen is a member of HMRC’s joint VAT consultative
committee, the self-assessment committee, the HMRC powers committee and the
Working Together Group.

That last group is certainly ironic. If HMRC was working together with the
profession, it would surely have asked the professionals on its own committee
what effect the VAT cut would have.

Could that make Allen’s appearances at the next meeting a little
uncomfortable? It’s possible, if the HMRC officers he meets contributed to the
government’s VAT calculations. If, on the other hand, the Treasury went it alone
on the numbers, they might find it easy to distance themselves from the
estimates. Those on the VAT group might even remark: ‘If only the Treasury had
asked us.’