50 Years of VAT in the UK

50 years ago, VAT (Value Added Tax) was introduced in the UK, marking a new era in our tax system.

As it made its debut, it quickly became a government cash cow and is now one of the country’s largest sources of revenue.   

So as the tax community comes together to mark VAT’s Golden Jubilee, let’s reflect on its evolution, its future and what all this means for the job market. 

A brief history of VAT

A continental invention, both France & Germany were the first nations to implement VAT which was subsequently adopted by the majority of Europe by the end of the 1970s.

The idea behind VAT was to create a tax that would be levied on the value added at each stage of production and distribution, rather than on the final price paid by consumers. This was seen as a more equitable way to raise revenue than the previous Purchase Tax System, which relied heavily on direct taxation of income and profits.

As you can imagine, its introduction wasn’t without controversy. There were concerns that it would lead to inflation and reduce the purchasing power of consumers. However, these fears quickly proved to be unfounded.

Since its implementation, the UK government has made several changes to VAT, mostly consisting of increasing rates or reconsidering what products or services should be exempt or eligible for a reduced VAT rate. A few made the headlines – one of the most coveted was abolishing the ‘tampon tax’.

So as VAT evolves to reflect society’s needs, it becomes increasingly complex. And it’s these frequent changes to both rates and regulations which has created a demand for indirect tax professionals with a deep understanding of the system to ensure compliance.

What the future looks like for VAT

Despite its evolutionary nature, VAT has never undergone a thorough public review. Now, many professionals are calling for reform.

As we mark the 50th anniversary of its introduction, it’s important to reflect on the impact that VAT has had on both the economy and society and consider how it could be improved to meet the demands of the future.

We know that taxes can incentivise certain behaviours. Take smoking as an example; high taxes on consumers have been recognized as one of the most effective population-based strategies for decreasing smoking and its adverse health consequences.

We’ve observed a growing number of indirect tax specialists become experts in environmental taxes, particularly in the wake of the Plastic Tax’s introduction in the UK, and it is likely more reforms will soon come into play to support initiatives including Global Britain, levelling up across the UK & hitting carbon-net zero. 

But of course, the elephant in the room here is Brexit and the more recent Windsor Framework.

Uncertainty has been a buzzword in the UK for many years now, and the VAT world hasn’t been exempt from this.

Leaving the European Union has not been an easy task, and although the UK left the EU over 3 years ago, the VAT world remains, well uncertain of what’s to come.

Some questions being asked on the future of VAT include

• Will we continue to see a divergence between the UK’s VAT system & the EU’s?
• Could the UK rejoin the single market?
• Will UK courts render the European Court of Justice’s decisions obsolete for UK businesses?
• Could VAT be abolished completely?

The indirect tax world is grappling with some murky waters, but VAT is likely to continue being a vital part of the UK’s tax system, and will play a significant role in the country’s finances for the foreseeable future. 

What all this means for the job market

So although there are challenges, this is also an exciting time for VAT professionals in the UK. 

We are in a moment of transformation, and for those of you following Harvey John’s tax content, you’ll know we’ve long observed a growing demand for indirect tax professionals.

From technology implementation, reform, and getting to grips with a post-Brexit world, this demand is unlikely to decelerate.

Alex Mann has been recruiting within the tax space for 8+ years and notes ‘The VAT market has probably changed more in the last 8.5 yrs I’ve been recruiting than it has in the last 30! We cannot ignore the influence that technology and digital reporting has had on the profession’.

As well as this, he’s observed an increase in the variety of career choices for indirect tax professionals in terms of the institutions they can choose to work in and the opportunities that now prevail within each institution. 

Notably, VAT compliance continues to grow as its own unique discipline, namely through the onset of complex digital reporting requirements.

Globally, the adoption of VAT in emerging markets such as the GCC has stretched resources further, heightening the demand for indirect tax professionals.

This huge demand for VAT specialists against the short supply of expertise has seen salaries continue to increase, year on year. Harvey John’s Tax Salary Guide will be released in the coming months which will give you a detailed insight into the current state of salaries specifically across indirect tax. 

As we look to the future of tax recruitment, it’s clear there’ll be new challenges on the horizon for VAT professionals, but these challenges will present some lucrative opportunities for specialists in this niche field.

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Katie Thomas is Research & Content Consultant at Harvey John

For expert advice on how to get the best out of your tax career, whether in a professional services firm or in-house, contact us today.

Harvey John is a specialist Accountancy, Tax & Treasury, and Legal recruiter operating across the UK & EMEA market