ICAEW calls for removal of almost all VAT exemptions ahead of tax reform

Scrapping almost all VAT exemptions could simplify the tax system and ease the reporting burden for businesses, a major regulator has suggested.

The report, published by the Institute of Chartered Accountants in England and Wales (ICAEW), comes in response to the Government’s call for evidence on simplifying the VAT land exemption.

The consultation document, found here, reveals that the VAT rules around land and property can now be reformed following the UK’s departure from the European Union.

The proposals include “removing the ability to opt and making all relevant transactions exempt”, “removing the option to tax and making all land and property taxable at a reduced rate”, or “making all commercial land and property taxable at the standard rate with an option to exempt”.

But the ICAEW says Brexit should also be considered as an opportunity to carry out a “fundamental review” of VAT exemptions that extend beyond land and property.

“VAT rules related to land and property are unnecessarily complex and could not only benefit from significant simplification, but also highlight the need for a more fundamental review of VAT exemptions,” said the ICAEW’s Tax Faculty.

“Abolishing exemptions would remove the difficulties for businesses and HMRC posed by partial exemption.

“However, ICAEW accepts that the question of identifying business and non-business activities would remain and further consideration would need to be given as to how that VAT incurred might be recovered.”

In its list of recommendations, the regulator suggests that all land and property transactions should be subject to VAT at the standard rate or reduced rate, other than those relating to domestic property which should remain zero rated.

It also proposes the removal of all VAT options, arguing that exemptions create “complexity and uncertainty” for businesses.

Click here to read the full ICAEW response.

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Posted in Property Tax.