A Research Perspective - December 1997
Ann Hansford,
Bristol Business School
University of the West of England, Bristol
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1 IntroductionIn February 1997 it was acknowledged that VAT is becoming more complex, with little chance of simplifying it. Mrs Strachan, Chairman of H M Customs & Excise maintained that it is therefore, '...something we are going to have to live with and to skill ourselves to deal with'. This applied research study considers topical issues facing tax practitioners and customs officers in the current climate. It reports on an extensive study which sought the views of both groups and provides a detailed analysis of the responses to a wide ranging questionnaire. In addition it considers good practice, areas of concern and areas for further research.
1.1 Background
VAT was introduced in 1973 and was a pre-condition to joining the then EEC, now the EU. It has been suggested by some commentators that it is likely that it would have been introduced even without the demands of the EEC. VAT replaced Purchase Tax and reflected it as much as possible, as the intention was to ease it into the business community as simply as possible. This is a legacy we still have within the UK VAT system.
Initially, there were no penalties to encourage compliance. Significant changes occurred in the mid 1980's following the Keith Committee report, with the Finance Act of 1985 being heralded, by some, as a watershed for VAT. Lord Keith considered that the powers of Customs & Excise were necessary given the nature of VAT and the risks involved with it. Despite being viewed as a 'simple tax' when it was first introduced the developments during the years since the Keith Committee Report have resulted in additional layers of legislation which involve a much greater level of complexity than was considered appropriate at the outset of VAT in 1973.
1.2 Recent developments
Further important developments have occurred during the last four years. In May 1994 there was the 'VAT Strategy into the Next Century' initiative which was introduced to address concerns over VAT compliance and to ensure collection procedures were as effective as possible.
The Fundamental Expenditure Review (FER) was announced in November 1994 and introduced a five year review. The main thrust of this was to concentrate Customs attention on high risk, complex areas of their work rather than on routine, low risk areas. It was viewed as an opportunity to undertake a widescale review of their activities to find the most effective way of providing the service, involving moving resources away from the compliant traders to the riskier end of the trader population. The FER resulted in focusing attention on establishing the most cost-effective methods to ensure VAT compliance. Decisions now lie with the local VAT offices with local managers given the authority to manage the work in their area in the light of their judgement of local circumstances. Complex issues are now considered by many VAT offices and this raises the issue of consistency.
In addition, VAT has become headline news with VAT cases, such as Argos, taken before the EC Court of Justice. The imposition of the three-year time limit for VAT repayment claims in July 1996 gave a clear indication of the Government's concern over 'tax leakage'.
In the November 1996 budget the 'Spend to Save' initiative was launched involving designated posts within Customs & Excise focusing on 'non-compliant' traders. The full effects of this initiative have yet to be determined.
1.3 The current study
This research study has been conducted against this background of rapid change and development with the fieldwork carried out between June 1996 and February 1997. It covers the current position, as assessed by both practitioners and customs officers, together with their views on improvements. In addition, during the course of the study further issues were raised, beyond the original remit, and these have been reviewed briefly to stimulate further debate and discussion.
The research design is covered in the next section. The following four sections, 3-6, provide a full analysis of the responses to the questionnaire survey, together with a review of comments made during the group discussions and free text comments on the questionnaires. Section 7 covers the additional issues raised beyond the original remit of the study with section 8 setting out the conclusions.
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