As the UK’s VAT turns 50, as accountants, we review the highs and lows of this tax in its 50th year.
Value Added Tax (VAT) was introduced in the UK on 1 April 1973 to replace the old purchase tax. It is a consumption tax charged on the sale of goods and services. Over the last half a century, we’ve seen the welcome highs and horrible lows of VAT. So, here are our observations.
You might think that there haven’t been many highs for VAT over the last 50 years but:
- VAT’s been a very successful tax for the UK government. It’s relatively easy to collect and generates a significant amount of revenue.
- It’s helped simplify the UK’s tax system. By replacing several other taxes, it’s easier for businesses to calculate and pay their taxes.
- VAT helped promote cross-border trade. Applying the same tax rate to goods and services sold in different countries makes it easier for businesses to trade internationally.
As you’d expects there is a list of lows when it comes to the impact of VAT, such as:
- VAT can be a complex tax for businesses to comply with. As we’re sure you already know, there are several different rules and regulations that you need to know about and it can be tricky to keep up with changes to the law.
- It’s a pain for consumers’ pockets. Added VAT on goods and services makes them more expensive, which means they may be more reluctant to spend.
Looking to the future
As we look to the future, VAT will continue to be an important source of revenue for the UK government. However, it’s also likely that the tax will continue to evolve with changes to VAT rates or new rules and regulations.
The UK may adopt a different approach to VAT in the future, for example, moving to a single rate of VAT or adopting a destination-based taxation system.
Only time will tell what the future holds for VAT. However, one thing is for sure, VAT will continue to be a major factor in the UK tax system for many years to come. As accountants, we closely monitor VAT developments and are here to help you understand, and comply with the latest VAT rules and regulations. Get in touch if you’ve got any VAT-related questions.