VAT simplifying measures increase both tax and complexity

by Tax Faculty Team on 22.05.2012 04:22

Tax Faculty responds to the consultation on VAT anomalies


The Tax Faculty has responded to HMRC’s Budget Day consultation VAT: Addressing borderline anomalies


Our comments are published as TAXREP 18/12. We are disappointed by the proposals, not least because they appear to replace a number of existing difficult borderlines with other potentially even more difficult borderlines.


Contrary to what is said in the consultation document, the proposed measures neither simplify nor reduce uncertainty, nor reduce costs for business. Many do the opposite and, in addition to the tax increase, add significantly to the costs and compliance burden of businesses. The overall result of the package is contrary to the Government’s growth agenda and particularly unwelcome given the difficult economic circumstances which face the UK.


Further, we are very concerned that the implementation costs set out in the impact assessments are far too low and lack credibility. For example, the estimated cost of implementing the VAT changes on hot food and premises is expected to be negligible at £50 on average. In view of the many implementation problems for businesses, these figures appear completely unrealistic.


This is not a new problem – the Tax Faculty has stated repeatedly that the business costs of proposed changes set out in impact assessments are too low and are unrealistic. We repeat our previous comments that these costings need input from business and advisers at the evidence-gathering stage – and we repeat our commitment to work with HMRC to improve them. Unless they are improved significantly we see little point in including them as they are unreliable evidence and undermine the basis for the measures.


Turning to the detail of the consulations proposals, in summary, we see serious practical and other problems with:



  • The use of ambient air temperature as the only definition.
  • Different VAT liabilities for identical products sold at the same temperature.
  • Freshly baked and cooling food.
  • The UK definition of ’catering’.
  • The difficulty of creating a legal definition of bread.
  • The widened definition of premises, which we anticipate will lead to widespread (and simple) avoidance by consumers.


Sports nutrition drinks

  • The legal definition of what constitutes ’marketed’. 


  • The need for this change (other than as a tax-raising measure).
  • The lack of clarity on what constitutes the storage of own goods.
  • VAT recovery by lessors when business to business (B2B) leased properties move in and out of tax as the usage varies.
  • The effect, costs and uncertainty on the B2B commercial property market for offices, warehousing and distribution centres until the above are resolved. 

Hairdressers’ chair rental

  • Whether this measure is actually necessary. 

Holiday caravans

  • The impossibility for suppliers to determine at the time of the supply whether or not to charge VAT – ie where the caravan will be placed by the purchaser.

Approved alterations to listed buildings

  • The effect of the imposition of 20% VAT on heritage property, both now and in the future.