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VAT reform could kick the UK economy into shape

The last few years have left the UK miles behind other countries in relation to financial reform.

London remains one of the world's top financial centres despite Brexit. — Photo: View of the City of London from The Shard. Image: © Tim Sandle.
London remains one of the world's top financial centres despite Brexit. — Photo: View of the City of London from The Shard. Image: © Tim Sandle.

The British economy continues to wobble and households are facing escalating prices. These are driven by rising energy costs, which spill over into both home heating and to car fuel, and by rising inflation. The increases in inflation are partly due to a series of global price rises and partly due to the aftershock of the U.K.’s exit from the European Union.

Pressure is building on the government to do more to help out the general population. While this may be an anathema to Conservative administrations, calls have been made to suspend an impending national insurance tax rise. There are other measures that be considered.

As the UK budget spring statement is set to be laid before parliament by Chancellor Rishi Sunak, Andy Spencer, Director of Consulting Services at Sovos, tells Digital Journal how VAT changes could help offer the British public much needed respite. This is as the population faces the biggest cost of living crisis in over 30 years.

Spencer notes that much is riding on the action that the government is set to announce, noting: “There’s understandably a lot of anticipation surrounding the UK government’s upcoming Spring statement. As Brits face the worst cost of living crisis in three decades, with inflation rates hitting 5.5 percent in January, the Spring Statement should offer respite and hope to citizens and business owners looking for a financial break.”

There is uncertainty, however, over the extent of radical solutions from the ruling administration. Spencer picks this up: “While consultations on a potential digital sales tax continue, we’re not expecting any major revelations on VAT in this announcement.”

This is short-sighted, according to Spencer since: “VAT could offer options for creative policy measures with potential gains for the Government and taxpayers alike. The UK government would benefit from looking across its borders for inspiration to address its stance on VAT, as countries across the globe successfully implement real-time tax reporting to reduce their respective VAT gaps and, ultimately, strengthen the economy as a whole.”

There have been some reforms in this area, Spencer acknowledges: “The ’Making Tax Digital’ (MTD) initiative does, in part, address this.”

Although there are flaws with this approach: “Yet the last few years have left the UK miles behind other countries and despite MTD applying to VAT for a number of years, HMRC receive no more information from taxpayers via the VAT return than they did pre-MTD. If the government wants to increase the collection of VAT to reduce the VAT gap helping to alleviate the cost of living rises for UK residents, it would be judicious to look into tested methods of innovative digital tax reporting so that the Tax Authorities receive real time information about a business’s transactions in a similar way to other countries who have introduced continuous transaction controls.”

Spencer sets out his own roadmap: “To offer some form of immediate relief for families and businesses, the UK government could potentially reduce the current VAT rate for energy companies to help reduce increasing household bills. In addition, now that we have left the EU, we could quickly adopt and adapt desirable legislation – whether or not considered by Brussels – that would be advantageous in UK law.”

In summary, Spencer recommends: “The past two years have been tough for the whole nation. Whether it’s mentioned in the Spring Statement or Autumn budget, it would be good to see the government making strides towards improving how it’s collecting taxes, so the benefits can be passed on to the rest of the country.”

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Dr. Tim Sandle is Digital Journal's Editor-at-Large for science news. Tim specializes in science, technology, environmental, business, and health journalism. He is additionally a practising microbiologist; and an author. He is also interested in history, politics and current affairs.

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