Jane Ellison, financial secretary to the Treasury, has written to the OTS asking them to begin work on a review of VAT, saying the aim was to ensure the VAT regime ‘is fit for purpose in our modern economy’.

‘The review should focus in particular on VAT accounting simplifications for SMEs, including annual and cash accounting, the flat rate scheme and the registration threshold. It could examine the rules for calculating VAT due to HMRC by businesses that make both VATable and VAT exempt supplies and it might also consider the complexity for businesses and administration under the current rate structure.

‘It should, however, avoid any more fundamental review of VAT rates and be mindful of sensitivities post-referendum,’ Ellison said.

In her letter, Ellison also asked the OTS to look at how stamp duty is collected on share transactions, saying that some features of this area of taxation, such as the physical stamping of documents, could benefit from simplification.

Terms of reference for both OTS review are due to be published shortly.

HMRC guidance on Tackling aggressive abuse of the VAT Flat Rate Scheme - technical note is here