ACCA - The global body for professional accountants
Over the last 40 years we have seen VAT throw up the most bizarre debates over what falls into the VAT net, including the Jaffa Cake conundrum that ended up in court and saw McVities go to great lengths to prove the Jaffa Cake was not a biscuit for VAT purposes. Looking ahead, eBooks provide us with a new dilemma. Having established that eBooks share more in common with standard rated services than they do the protected zero rated class of printed books, we now have the whole issue of where you actually charge the VAT on eBooks – with particular focus on the tendency of some suppliers to charge UK VAT to the publisher (20 per cent) but only pay over Luxembourg VAT (3.5 per cent) to the authorities
—Chas Roy-Chowdhury, head of taxation, ACCA

VAT has doubled since it was introduced 40 years ago and has become a complicated stumbling block for small businesses and sole traders, says ACCA (the Association of Chartered Certified Accountants)

ACCA says although VAT was supposed to be a simple tax when introduced on 1 April 1973, it has become so complicated that 56 per cent of small businesses say it is an obstacle to their business success, according to figures from the Department of Business, Innovation and Skills. 

Chas Roy-Chowdhury, ACCA head of taxation, said: 'VAT was supposed to be a simple tax, harmonised across Europe, when it arrived back in 1973. Today, some VAT rates are double what they were back then, we have a non-harmonised system at European Union level and VAT treatments today fall into five different categories, which make it far from simple. VAT has clearly become an obstacle for businesses looking to grow. Making it less complicated seems like an obvious solution but it is an essential one if we want the UK’s SME and sole trader sectors to develop without the tax system holding it back. 

'Over the last 40 years we have seen VAT throw up the most bizarre debates over what falls into the VAT net, including the Jaffa Cake conundrum that ended up in court and saw McVities go to great lengths to prove the Jaffa Cake was not a biscuit for VAT purposes. Looking ahead, eBooks provide us with a new dilemma. Having established that eBooks share more in common with standard-rated services than they do the protected zero-rated class of printed books, we now have the whole issue of where you actually charge the VAT on eBooks – with particular focus on the tendency of some suppliers to charge UK VAT to the publisher (20 per cent) but only pay over Luxembourg VAT (3.5 per cent) to the authorities.

'Making VAT easier for businesses would also help the enforcement authorities as well. Businesses get VAT wrong and payment systems that split the VAT off at the point of sale, sending it direct to the Treasury with merchants only keeping the net receipt would make life easier for everyone – business and tax collectors alike. However, this would exclude cash dealings and we are not quite at the point where cash sales are dead and everything is paid for electronically. Even here the development of phantomware in payment systems could allow businesses to manipulate how much tax they pay. Recent HMRC figures show that almost 70 per cent of visits by trained investigators found such sales manipulation software, so any future VAT system would need to be robust.'

ACCA points out businesses are faced with five VAT categories of Standard Rated, Zero Rated, Reduced Rated, Exempt or outside the scope of VAT – with more complex issues relating to areas such as restaurant discounts. The variation of how VAT is applied in different countries is also confusing with some countries outside Europe applying VAT across the board and then paying rebates to those on the lowest incomes. 

Chas Roy-Chowdhury added: '40 years of VAT is not a cause for celebration. It is a reminder of the never-ending headache VAT creates for businesses.'

- ends – 

For more information, please contact:

Steve Rudaini, ACCA Newsroom
+ 44 (0) 207 059 5622
+44 (0) 780 113 3985
steve.rudaini@accaglobal.com 

Helen Thompson, ACCA Newsroom
+44 (0)20 7059 5759
+44 (0)7725 498654
helen.thompson@accaglobal.com 

Notes to Editors

  1. ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants. We aim to offer business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management. 
  2. We support our 154,000 members and 432,000 students in 170 countries, helping them to develop successful careers in accounting and business, with the skills required by employers. We work through a network of over 80 offices and centres and more than 8,400 Approved Employers worldwide, who provide high standards of employee learning and development. Through our public interest remit, we promote appropriate regulation of accounting and conduct relevant research to ensure accountancy continues to grow in reputation and influence. 
  3. Founded in 1904, ACCA has consistently held unique core values: opportunity, diversity, innovation, integrity and accountability. We believe that accountants bring value to economies in all stages of development and seek to develop capacity in the profession and encourage the adoption of global standards. Our values are aligned to the needs of employers in all sectors and we ensure that through our qualifications, we prepare accountants for business. We seek to open up the profession to people of all backgrounds and remove artificial barriers, innovating our qualifications and delivery to meet the diverse needs of trainee professionals and their employers.