The ICAEW has launched a renewed push on simplifying the VAT system, with a senior figure at the organisation stressing that it “can’t be ignored any longer”.
This call for research proposals is focused on addressing specific challenges within the UK's VAT system. The current complexity of UK VAT, including a myriad of rates and exemptions, not only confuses taxpayers and policymakers, but also creates disproportionate compliance burdens for businesses.
An assessment of the VAT compliance burden across 47 member countries of the Forum on Tax Administration in 2017 found that the UK’s VAT compliance burden is higher than that in countries with a ‘modern VAT system’, such as Singapore, New Zealand and Australia.
This complexity hinders effective policy making and enforcement, leading to inefficient tax collection and administration. In recent years, we have seen the creation and extension of zero rates for women’s sanitary products and e-books, despite a consensus among economists and academics that a broad VAT base (and a lower rate) optimises the efficiency of the tax.
The complexity of UK VAT is a barrier to HMRC’s efforts to digitalise the tax, with digitalisation in the UK lagging behind many international peers. It is no coincidence that the country with one of the most digital tax systems in the world, Estonia, also has one of the simplest tax systems in the world.