Back in April I emailed David Gauke (Exchequer Secretary to the Treasury) asking about the UK government’s current position on European VAT harmonization.

I picked on Mr. Gauke because he has a made a few statements about the matter to Parliament – in particular, he appeared to express wariness and skepticism about the Standard VAT Return.  I wondered what he made of the European Parliament’s recent adoption of the proposal.

Well, last week I received an answer in the post. Not from the Secretary himself, but from Jennifer Bradbury, of HMRC’s Ministerial Correspondence Unit.

It is a very subtle and interesting document, and gives a couple of clues about the UK’s plan for ongoing VAT negotiations. After setting out a brief description of the Commission’s proposal, Ms. Bradbury comments:

The Commission is seeking to address some of those issues [of efficiency] through this legislative proposal which, as it would be mandatory, would impact on all businesses in the EU, whether or not they trade in other Member States.

The UK would support an outcome that offered real benefits for UK businesses trading across the EU and at the same time ensured that there was no increase in the overall burden for UK businesses. That fits with the Government’s overall objective to cut red tape for businesses and to encourage them to increase their cross-border trade. The Government is also looking at other initiatives, such as the EU Web Portal, which is aimed an enhancing the information available to businesses across the EU, to see whether they might offer equivalent and more cost effective alternatives.

At first blush, this sounds broadly supportive of the Standard Return (‘this fits with the Government’s overall objective’), yet there is in fact a very serious buried caveat. Ms. Bradbury comments that the Government would only ‘support an outcome’ that ensures there is ‘no increase in the overall burden for UK businesses’. But in the previous paragraph she has just noted that ‘this… proposal which, as it would be mandatory, would impact on all businesses in the EU, whether or not they trade in other Member States’.

…the Government would only ‘support an outcome’ that ensures there is ‘no increase in the overall burden for UK businesses’.

It is hard to see how the specifics of the proposal – that all EU (and therefore UK) businesses file the new return – are reconcilable with the commitment to ‘no increase in the overall burden’. The massive majority of UK businesses file VAT returns in the UK only; at the very least, these companies are going to have to adapt to a EU-wide new compliance regime. Almost all systems changes imply costs to the user – and in this case, no advantage would be conferred on most users.

The politics could be toxic: new compliance costs plus a shared European tax regime! Imagine what UKIP could do with that. It would be a brave Government to press ahead, given what has just happened at the European elections.

But it would also be a brave Government to rule the Standard Return out. There could be repercussions at EU level. Hence, I think, the calculated ambiguity of Ms. Bradbury’s reply. The UK government is either backing a new European tax structure – a bad story – or blocking plans to make the European tax system more efficient – a bad story at a tricky time for the EU.

Which is it to be?

By |June 9th, 2014|