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It's time to simplify VAT rules says accountancy body

3 August 2021

With the UK now out of the EU, the Institute of Chartered Accountants in England and Wales (ICAEW) says the UK government is now in the best position to thoroughly review the structure of VAT.

The ICAEW has reiterated its call for all VAT exemptions to be abolished in its response to the HMRC consultation on how to simplify VAT rules related to land and property. It has also recommended the removal of all VAT options.

According to the ICAEW's Tax Faculty , current 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.

In its response to HMRC's call for evidence on simplifying the VAT land exemption , ICAEW has argued that abolishing exemptions would remove the difficulties for businesses and HMRC posed by partial exemption. However, it says it 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.

ICAEW suggests that all land and property transactions should subject to VAT at the standard rate or reduced rate, other than those relating to domestic property which should remain zero rated. This approach would remove many of the complexities of the current regime.

The faculty also recommends the removal of all VAT options, arguing: "Any option, whether it be to tax or exempt a transaction, creates complexity and uncertainty, as there are then two possibilities for the VAT liability of what is essentially the same type of supply."

ICAEW's Tax Faculty has previously called for the abolition of VAT exemptions in letters to the Financial Secretary to the Treasury.

Written by Rachel Miller.

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