Tax professionals have stressed the need for greater support from HMRC to help businesses get their VAT right and close the VAT gap.
In written evidence to the House of Commons Treasury Select Committee, the Chartered Institute of Taxation (CIOT) said that HMRC should improve their VAT guidance and be more willing to provide rulings where businesses want certainty over their VAT treatment.
The Institute added that such support would go some way towards reducing the £3.5 billion VAT gap that HMRC has said results from mistakes made by businesses when submitting their VAT returns.
It also warned MPs that a reduction in HMRC staff numbers will do little to help in efforts to close the VAT gap. While reversing the trend of staff reductions and office closures could be perceived as an "unpopular" concept in government, the CIOT argued that the investment was an essential part of efforts to significantly cut the VAT gap.
The CIOT also warned that while uncertainty over Brexit was having an impact on businesses, it also provided HMRC with opportunities to reform and simplify the current system.
In its evidence to the committee, the CIOT highlighted six key areas for addressing the VAT tax gap, which amounted to £12.6 billion – or just under 10% of the total expected to be collected – in 2015/16.
These areas are:
- Providing better guidance and taxpayer support to reduce errors and ensure that taxpayers pay the correct amount of VAT that they owe
- Increasing the number of HMRC advisers dedicated to VAT compliance
- Undertaking a review of HMRC’s capabilities to ensure that it has the people, tools and training necessary to detect high risk behaviours and transactions
- Ensuring that steps are put in place to ensure that Brexit does not increase or change opportunities for fraudsters to engage in dishonest activities
- Resisting the temptation to introduce widespread changes that are disruptive to the majority of compliant businesses
- Working with professional bodies such as the CIOT to identify effective and targeted measures to reduce the VAT gap
Commenting, Alan McLintock, chair of the CIOT’s Indirect Taxes Sub-Committee, said:
“In order to significantly cut the VAT tax gap, HMRC finds itself facing a number of tough choices, some of which may go against the grain of current government thinking.
“Achieving this goal will require investment and potentially increased HMRC staff numbers in an environment that has seen a reduction in both offices and staff numbers, not to mention a move away from face to face engagement with taxpayers. Without this extra investment, we find it hard to see whether any decrease in the VAT can be achieved.
“Brexit is perceived by many businesses as representing a major challenge, one that is already having an impact on investment decisions. Uncertainties over what a post-Brexit VAT system will look like, when this new system will take effect and what impact it will have on their operations are paramount at present.
“Brexit alone is not the problem. Many of the complexities that contribute to the VAT gap do not arise as a result of the EU VAT system, but are instead ‘home grown’. Eliminating some of these complexities, and providing greater support for businesses, is something the government can do now”.
Notes for editors
- A copy of the CIOT’s submission can be found here.