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The Office of Tax Simplification thinks the high VAT threshold has a distortionary effect on business.
Of all tax revenue in 2016-17 VAT produced 22.5%. Fully £120bn was raised in that year through a system largely based on EU rules that are generally considered overly complicated and an administrative burden. The Office of Tax Simplification (OTS) published its first review focused specifically on VAT on 7 November. It suggests steps for the government to change the VAT system. These include a review of the VAT registration threshold. The Chancellor announced in the Budget that the threshold will not be reduced for two years but what then?
At £85 000 the threshold is one of the highest in the world and allows many small businesses to avoid having to deal with often complex VAT compliance. The OTS gives the example that a gingerbread man with chocolate eyes is zero-rated but will be standard-rated if it has chocolate trousers. However the OTS found...
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