Faculty questions Treasury’s VAT plans

In the last budget, chancellor Gordon Brown revealed his intention to introduce a flat rate of VAT for smaller business entities and annual accounting, while a consultative document was released in June.

A period of consultation was introduced, and following this, the Tax Faculty welcomed the proposals – but questioned its true value.

The flat rate scheme would absolve qualifying businesses from having to account internally for VAT on all their purchases and supplies. Instead they would calculate their net VAT liability as a percentage of turnover.

The percentage would depend on the trade sector, but the Faculty said: ‘Many businesses may feel that the reduced tax compliance burden will not bring them sufficient fiscal advantage or lack of disadvantage to make it worthwhile joining the scheme.’

The government also wants to encourage participation in the annual accounting scheme and is proposing the removal of the 12-month qualifying period for businesses with turnovers up to Pounds 100,000.

But the Faculty added: ‘Our longstanding concern with accounting for VAT on an annual basis is that businesses do not have the external discipline imposed on them of having to update their books at least quarterly.’


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