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VAT consultations

Spring Statement 2018 – the VAT aspects

carolineheath 14 March 2018 No comments

The Chancellor of the Exchequer, Philip Hammond presented his first Spring Statement to Parliament on Tuesday 13 March 2018.

Major tax or spending changes will now be made once a year at the Budget in the Autumn.

The Spring Statement is intended to:

  • give an update on the overall health of the economy and the Office for Budget Responsibility (OBR) forecasts
  • give an update on progress made since Autumn Budget 2017
  • invite people and businesses to give views on changes the government is considering.

VAT aspects

Three consultations relating to VAT were announced on the following issues:

  • A call for evidence to explore the design of the VAT registration threshold
  • Potential options for a new VAT collection mechanism for online sales, known as the VAT split payment mechanism
  • A call for evidence on the impact of VAT and air passenger duty (APD) on tourism in Northern Ireland.

 

VAT registration threshold – call for evidence

The UK currently has the highest VAT registration threshold in the EU.  This has the benefit of keeping the majority of small businesses out of VAT altogether, helping small businesses avoid the administrative burden of accounting for VAT.

However, there is growing evidence that the cliff-edge nature of the VAT threshold acts as a disincentive for small business owners who want to expand. This was highlighted as a major concern in the Office of Tax Simplification’s (OTS) recent report on the UK VAT system.

The OTS report recommended that the ‘government should examine the current approach to the level and design of the VAT registration threshold, with a view to setting out a future direction of travel for the threshold, including consideration of the potential benefits of a smoothing mechanism’.

This call for evidence explores the effect of the current VAT registration threshold on smaller businesses and considers possible alternative solutions that could encourage growth and smooth the current cliff-edge between exemption and taxation.

The government is particularly interested in responses from small VAT registered and unregistered businesses that trade near the threshold, and their representative bodies.

To encourage responses from small businesses the questions included in this consultation have been streamlined into a SurveyMonkey questionnaire, which can be completed here.

The consultation closes on 5 June 2018.

VAT split payment mechanism for e-commerce – consultation

This consultation seeks views on possible options for how a potential split payment mechanism could work to combat online VAT fraud.

This follows feedback received in the earlier call for evidence on Alternative method of VAT collection, and the government’s ongoing engagement with stakeholders.

The expansion of e-commerce in recent years has posed major challenges to the VAT system. Some businesses fail to charge VAT when they are supposed to on sales of goods to UK consumers. This non-compliance is estimated to have resulted in VAT losses of £1-1.5 billion in 2015-16.

The UK was the first country to introduce joint and several liability rules to hold online marketplaces responsible for the unpaid VAT of sellers on their platforms. These measures announced at Budget 2016 and Autumn Budget 2017 are together expected to raise about £1 billion of VAT by 2023. But now the government wants to strengthen its fight against online VAT fraud, by harnessing new technology to introduce a VAT split payment mechanism. By utilising payments industry technology, the aim is to collect VAT on online sales and transfer it directly to HMRC. This would significantly reduce the challenge of enforcing online seller compliance and offer a simplification for businesses.

The consultation sets out the government’s emerging thoughts on how the mechanism could work, how it could be enforced, and considers a number of options for how the VAT could be accounted for.

HMRC will be running a series of collaborative workshops to test emerging views over the spring and summer and invites all those with an interest to get in contact.

The consultation closes on 29 June 2018.

VAT, air passenger duty (APD) and tourism in Northern Ireland – consultation

Concerns have been raised about the impact of VAT and APD on tourism in the UK, and particularly in Northern Ireland. However, views on the potential costs and benefits of any changes are divided.

The government is therefore seeking evidence that demonstrates the significance of any impacts that VAT and/or APD have on tourism, or that helps show how VAT and/or APD might be used to support growth of the sector in Northern Ireland.

The deadline for responses to this consultation is 5 June 2018.

Businesses affected by these issues are encouraged to respond to the consultations. Please get in touch if you wish to discuss the issues raised in these consultations in more detail.