Should accountants pay VAT on everything they buy?

The Institute of Fiscal Studies has recommended extending VAT to cover nearly all spending, a move that may not meet with the approval of some struggling contractor accountants.

This radical reform is part of a package of suggestions to simplify the overly complex and often unfair taxation system that exists in the UK at present.

According to the IFS, our complex tax system costs tens of billions of pounds every year. In its review published yesterday, the Institute reaffirmed its call for income tax and National Insurance to be merged.

Paul Johnson, an IFS director, said that extending the scope of VAT would reduce its complexity and went on to suggest that an equivalent tax should be levied on financial services.

Other proposals from the Institute include removing taxation from savings accounts, abolishing stamp duty and replacing petrol and diesel tax with a congestion charge.

Whilst these might seem like radical measures, the Institute did say this was where it would like to see the tax system in 10 or 20 years time. The reforms need to considered as a whole package rather than individually and the UK needs to move gradually towards a simplified tax system.

Johnson went on to say that a government that focuses on growth cannot ignore the fundamental reforms that need to be implemented to the taxation system. This means taking a long-term, systematic approach which unfortunately has been lacking for several years.

In response, a Treasury spokesperson explained that the government has already started a programme of reforms based on clear principles where work will be rewarded and complexity reduced. More than 800,000 low earners no longer pay tax on their earnings, corporation tax has been reduced and the government has set up the Office of Tax simplification, the spokesperson added.

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