Given the current complexity of UK VAT regulations it’ll be interesting to see how these European Commission’s proposals are reconciled with any proposals coming out the Office of Tax Simplification’s review of VAT post Brexit.
A post-EU Britain will need its own VAT and customs duty, hopefully simplified and positioned to encourage business activity wherever possible which will help the UK economy. In the meantime as part of the Action Plan on VAT to create a single European VAT area for cross-border supplies, the European Commission is consulting on reform of VAT rates to amend Directive 2006/112/EC.
If the Commission’s desire to create a unified VAT landscape is to be successful it requires reform of the existing special rules for SMEs and modernisation of existing EU VAT rules.
The consultation, Adapting the VAT system to the needs of SMEs, proposes a comprehensive simplification package for SMEs that will seek to create a more business-friendly environment, as set out in its 2016 Action Plan on VAT (COM(2016) 148 final).
Interested parties are asked to complete an online survey voicing their views and concerns, including use of the SME exemption, how the current system interacts with business practice, problems with lack of consistency across the EU as different countries pursue their own systems, and whether it prevents businesses trading cross-border in EU.
It is gauging views on making the SME scheme mandatory for all member states and all SME companies, rather than the current optional basis.
One of the more interesting proposals being considered is to allow companies based in another member state to sign up to the SME scheme in another jurisdiction where they trade but are not based.
The reason for the overhaul is that ‘the present rules suffer from several drawbacks. Those rules still make it excessively complex and costly for SMEs to comply with their VAT obligations and do also not take into account the Single Market perspective, since suppliers from other member states do not get the same VAT treatment as domestic suppliers. As a result of this, SMEs bear proportionally higher VAT compliance costs than large enterprises’, the Commission stated in the consultation document.
The SME scheme consultation questionnaire is available here.
The European Commission Public consultation on the special scheme for small enterprises under the VAT Directive is available here
You can read more about the Office of Tax Simplification VAT review here.
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