VAT news

Budget 2018

Autumn Budget 2018 – VAT Aspects

carolineheath 30 October 2018 No comments

Chancellor Philip Hammond presented the Autumn Budget 2018 yesterday.  The main VAT-related measures announced were:

VAT registration threshold

The VAT registration threshold is to be maintained at the current level of £85,000 for a further 2 years until April 2022. It had previously been frozen at that level until April 2020 in Autumn Budget 2017. The deregistration threshold will remain at £83,000.

The Government has published a response to the call for evidence on the design of the VAT threshold. For further information on this consultation see our earlier blog article. The responses received did not provide a clear option for reform. The Government will look again at the possibility of introducing a smoothing mechanism once the terms of EU exit are clear.

Further information is available in the following documents:

Policy Paper – VAT thresholds remain unchanged

Consultation outcome – VAT registration threshold: call for evidence

VAT treatment of vouchers

Following consultation, legislation will be introduced in Finance Bill 2018-19 to implement new EU legislation on the VAT treatment of vouchers from 1 January 2019.

The new rules will simplify the tax treatment of vouchers, especially where they can be used either in the UK or more widely in the EU. This will prevent either non-taxation or double taxation of goods or services which relate to vouchers.

Further information on the new rules can be found in our blog article and the following document:

Policy Paper – Changes to the VAT treatment of vouchers

VAT reverse charge in the construction sector

As announced at Autumn Budget 2017, and following consultation, the government will introduce a VAT domestic reverse charge in the construction sector to prevent VAT losses through so-called ‘Missing Trader’ fraud. This occurs when traders collect VAT on their sales but go missing before paying that VAT over to HMRC. This will shift responsibility for paying VAT along the supply chain to remove the opportunity for it to be stolen by those traders.

The new rules will take effect from 1 October 2019.

VAT reverse charge anti-avoidance amendment

The Government will legislate in Finance Bill 2018-19 to amend the avoidance provisions contained in primary legislation for a VAT reverse charge measure to specify that purchases of certain supplies will not count as turnover for VAT registration purposes.  This measure will prevent unintended consequences for small businesses trading below the VAT threshold.

Further information is available in the following document:

Policy Paper – VAT reverse charge anti-avoidance changes

VAT and higher education

The Government will amend VAT legislation to ensure continuity of VAT treatment for English higher education providers under the Higher Education and Research Act by enabling bodies registered with the Office for Students in the Approved (fee cap) category to exempt supplies of education.

Alternative method of VAT collection: ‘split payment’

To reduce online VAT fraud by third country sellers and improve how VAT is collected on cross-border e-commerce, the Government is looking at introducing a split payment model. Following the consultation launched at Spring Statement 2018, the Government will publish its response document shortly.

An Industry Working Group will also be established to address some of the main challenges associated with this policy through close cooperation with stakeholders.

For further information on the consultation see our previous blog article.

VAT grouping

The Government will legislate in Finance Bill 2018-19 to extend the eligibility to join a VAT group to certain non-corporate entities.

In addition, revised VAT grouping guidance will be issued to:

  • amend the definition of ‘bought in services’ to ensure that such services are subject to UK VAT
  • provide clarity to businesses on HMRC’s protection of revenue powers and treatment of UK fixed establishments.

The changes will come into effect on 1 April 2019. The draft guidance will be made available to business groups in November.

VAT Specified Supplies Order

As announced in July 2018, the Government will legislate to prevent a version of VAT avoidance, known as ‘looping’, that involves UK insurers setting up associates in non-VAT territories and using these associates to supply their UK customers. This allows them to reclaim VAT on costs that UK based competitors are unable to reclaim.

The change will come into effect on 1 March 2019.

Further information is available in the following document:

Policy Paper – Changes to the VAT specified supplies anti-avoidance

Unfulfilled supplies

The Government will amend rules from 1 March 2019 to bring consistency to the VAT treatment of prepayments. This change will bring all prepayments for goods and services into the scope of VAT where customers have been charged VAT but have failed to collect what they have paid for and have not received a refund.

A Revenue & Customs Brief giving full details of the change will be published later in the year.

Regulation 38 adjustments

The Government will introduce stricter rules for how and when adjustments to VAT should be made following a reduction in price. New legislation will tighten definitions for Regulation 38 and ensure a credit note is issued to customers. This will guarantee businesses are transparent and do not benefit from VAT that is due to the consumer or the Exchequer. The changes will be made by secondary legislation and will come into force in September 2019.

Electronic sales suppression (ESS)

The government will publish a call for evidence later in the year on ESS. ESS refers to the misuse of electronic point of sale functions (i.e. till systems), which is undertaken by a minority of businesses in order to hide or reduce the value of individual transactions and the corresponding tax liabilities.

The full set of Autumn Budget 2018 documents can be viewed here.

Please contact us if you would like further information on any of these measures.