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VAT Exemption Proposals Would Bring About A Simpler System

I’ve previously mentioned the effects of non-standard VAT systems globally and how it can affect your company’s ability to claim back foreign VAT. Now a UK based think tank has come up with proposals to reform the VAT exemptions system to implement a flat rate standardised tax across all goods and services.

The government think-tank “Reform” are the group putting forward the proposals.  I’m happy to see that there are bodies out there thinking this way about the VAT system. Our current system is approaching middle age (it was introduced in the 1970s to replace a number of other surcharge taxes) and could really do with an overhaul to bring it inline with other countries but more importantly to make it more transparent and easier to understand.

I’ll admit that I’m still confused on some of the items that do and don’t fall into the standard, reduced and zero rates of VAT. Most foods and light takeaways are VAT exempt but not so for hot food or food eaten in restaurants/cafes. Is it any wonder that there are calls to simplify the system?

The most likely implementation of a flat rate scheme across all goods and services would impact on households as most of the questionable VAT rate items are sold as household items. From the outside looking in, this could definitely be seen as a sly tax on families and the home. On the other hand, it may lead to a reduction in the standard VAT rate, as the income would be split across a greater number of products.

Presently, it’s all just talk and proposals being bandied about. None of the three major political parties have made any public disclosures as to whether they would take on board the proposals. All three parties are presently pinning their proposals on unpopular tax increases for income and employment. Rather than these, let’s hope the general election will see some truly beneficial tax reforms to counter the outpourings of the economic downturn.


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