Small businesses in the UK and across the EU are being excluded from operating on a cross-border basis because the VAT system in the UK and other member states is so complicated, according to research from ACCA report Harris & Co accountants Northampton who specialise in providing accountancy services to small and medium sized businesses.
This is a conclusion to a report published by the institute to mark 40 years of VAT in the UK, which examines how the tax works across Europe. ACCA says that the various VAT rates and exclusions in each EU member state mean that most small businesses are excluded from the single market by the complexities of accounting for VAT across all the member states, as well as by the number of languages involved.
Chas Roy-Chowdhury, ACCA head of taxation, said: ‘VAT was supposed to be simple. In the UK alone it has become a complicated tax, but when you add in the various rates and exclusions that apply in the EU it becomes a maze. It is the most business-unfriendly tax there is, while consumers are forced to pay higher prices for the instances of double taxation.’
ACCA’s report highlights the variations in VAT rates, with Hungary charging 27% compared to Luxembourg’s 15%. However, the institute says the real problem lies in the plethora of reduced rates and exemptions and calls for a harmonised system for reduced rates at a common, low level. ACCA argues this would not only help reduce the complexity for small businesses, but would also reduce the opportunity for tax fraud and litigation.
Roy-Chowdhury said: ‘Fraudsters have taken advantage of the multi-layered nature of VAT. They have found ways of obtaining a VAT refund without paying VAT themselves; they then disappear before the tax authorities can catch up with them.’ He called on tax authorities across the EU to take action to prevent this kind of fraud by making public the names and details of so-called ‘missing trader’ fraudulent businesses.