VAT rules related to land and property are unnecessarily complex and could not only benefit from significant simplification, but also highlight the need for a more fundamental review of VAT exemptions, according to ICAEW’s Tax Faculty.

In its response to HMRC’s call for evidence on simplifying the VAT land exemption, published as ICAEW Rep 70/21, ICAEW concludes that following the UK’s departure from the EU the government is in the best position since the introduction of VAT to thoroughly review the structure of the tax.

It argues that abolishing exemptions would remove the difficulties for businesses and HMRC posed by partial exemption. However, ICAEW accepts that the question of identifying business and non-business activities would remain and further consideration would need to be given as to how that VAT incurred might be recovered.

ICAEW suggests that all land and property transactions should subject to VAT at the standard rate or reduced rate, other than those relating to domestic property which should remain zero rated. This approach would remove many of the complexities of the current regime, it concludes.

The faculty also recommends the removal of all VAT options, arguing: “Any option, whether it be to tax or exempt a transaction, creates complexity and uncertainty, as there are then two possibilities for the VAT liability of what is essentially the same type of supply.”

ICAEW’s Tax Faculty has previously called for the abolishment of VAT exemptions in letters to the Financial Secretary to the Treasury, most recently ahead of the 2021 Budget, as well as in response to the Treasury Select Committee's call for evidence on tax after coronavirus.

• Read ICAEW Rep 70/21 in full.
• Read ICAEW’s Budget 2021 letter to the Financial Secretary to the Treasury (ICAEW Rep 08/21)
• Read ICAEW’s response to the Treasury Select Committee's call for evidence on tax after the coronavirus (ICAEW Rep 68/20)