While European Commission proposals to standardise VAT returns across all EU member states will cut the regulatory burden for small companies, they do not go far enough and risk increasing the administrative and financial costs for mid-sized corporates, according to analysis by the accounting institutes and individual firms.
ACCA says that restricting the number of possible boxes on the VAT return form and aligning their content and presentation across the EU should help reduce significantly the learning burden on small businesses.
Chas Roy-Chowdhury, head of taxation at ACCA, described the move as a ‘very useful business focused proposal’, saying: ‘We believe that it represents a step in the right direction to help companies, especially the small ones, to make the most of – and possibly expand – their business opportunities in the single market.’
ICAEW is also supportive of the standard VAT return, which it says should reduce errors and costs and increase efficiency for both businesses and EU tax administrations, but says that the EU VAT system itself is now ‘out-dated’ and ‘no longer fit for purpose’.
Ian Young, ICAEW international tax manager, said: ‘Reducing unnecessary red tape where possible is critical to allowing businesses to focus their efforts on actually doing business. However, introducing a standard VAT return form across the EU will not automatically fix the EU VAT system. Further changes are required to make the system simpler and more coherent.’
Meanwhile, BDO is warning that the move to standardise VAT returns have an adverse impact on UK medium sized corporates. It points out that at present UK businesses with an annual VAT liability in excess of £2m – in effect, most businesses with a turnover of at least £10m – are subject to HMRC’s ‘Payment On Account Scheme’ and are required to file quarterly VAT returns and pay the VAT due in monthly instalments. Companies below this threshold currently file and pay their VAT on a quarterly basis.
Under the draft legislation, any business with an annual turnover of more than €2m (£1.7m) will be required to submit and pay their VAT returns on a monthly basis, rather than quarterly as before. As a result, BDO estimates that as many as 100,000 UK businesses will have to file and/or pay their VAT returns more frequently than under the current system – with unfavourable consequences on admin costs and cashflow.
Tom Kivlehan, BDO VAT partner, said: ‘The European Commission claims that its proposals are designed to help businesses, but in fact they will have exactly the opposite effect for mid-sized organisations. Unless the draft legislation is amended, tens of thousands of UK businesses will have to file or pay their VAT returns more frequently. How can these proposals be of benefit to companies that are already overwhelmed by red tape and having to battle to manage their cashflow?’