Following the Chancellor’s Autumn Budget, there were a few key points worthy of mention from a VAT perspective.
VAT Thresholds – Frozen
The VAT registration and deregistration thresholds will not change for 2 years from 1 April 2020. The taxable turnover threshold (which determines whether a person must be registered for VAT) will remain at £85,000. The taxable turnover threshold which determines whether a person may apply for deregistration will remain at £83,000.
The Government will extend the eligibility to join a VAT group to certain non-corporate entities. Currently only UK based corporate entities are eligible for VAT grouping.
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; and,
- provide clarity to businesses on HMRC’s protection of revenue powers and treatment of UK fixed establishments.
These measures will come into effect from 1 April 2019.
VAT Treatment of Vouchers – Simplification
An EU Directive on the VAT treatment of vouchers will be implemented in time for the required date of 1 January 2019. You can read more about this on a previous blog.
The Directive will simplify the rules for the tax treatment of vouchers, preventing either non-taxation or double taxation of goods or services which relate to vouchers. It affects only vouchers for which a payment has been made and which will be used to buy something. The measure does not apply to vouchers issued before 1 January 2019, for which existing rules will continue to apply. The changes also do not apply to discount vouchers or money-off tokens.
By way of background, under current UK VAT legislation, the customer is deemed to be receiving two supplies: (i) a voucher; and (ii) an underlying supply of goods or services. The new measures simplify matters and make it clear that for VAT purposes there will no longer be a separate supply of a voucher. Instead there is only the supply of the underlying goods or services, which will be provided in exchange for the voucher at a later date.
Businesses will be effected by the changes which relate mainly to tax points (the ‘time of supply’) and HMRC has stated that they will assist businesses in applying the new rules. From the consumer’s perspective, there should not be any noticeable change.
There were a couple of changes relating to existing ‘anti-avoidance’ provisions – both in respect of the ‘reverse charge’ with one specific to insurance, the other more general.
(i) General Anti – Avoidance Measure
The VAT ‘reverse charge’ works by changing who accounts for the VAT on specified supplies from the supplier to the customer. This only works where the customer is also VAT registered. The anti-avoidance provisions were introduced to discourage attempts by fraudsters to escape a reverse charge measure by making supplies to non-VAT registered businesses instead and charging VAT.
The Chancellor announced a new measure which will allow regulations to be made to prevent unintended consequences for small businesses trading below the VAT threshold.
(ii) Anti-Avoidance – Insurance Services
In addition, the Chancellor announced new measures that will seek to prevent (perceived) avoidance by companies that form arrangements with organisations outside of the EU to re-supply or ‘loop’ certain financial services back to United Kingdom consumers.
This re-supply allows the businesses to reclaim the VAT on associated costs and thereby gaining a competitive advantage over purely UK based companies.
HMRC has stated that ‘this order seeks to prevent a particular form of this ‘looping’ involving insurance intermediaries by restricting the application of the specified supplies order to cases where the final consumer is not in the UK, as was intended.’
A (minor change) was announced by which the Government will amend VAT law 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’
In order 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 a ‘split payment’ model.
Essentially, this means that as well as the overseas sellers – which are invariably outside the UK’s jurisdiction, thereby making enforcement by HMRC difficult – another party in the transaction, perhaps a payment service provider, the merchant’s bank or, most likely, the merchant acquirer will be responsible for the VAT due on a transaction.
This follows the consultation launched at Spring Statement 2018. An Industry Working Group is to be established to address some of the main challenges associated with this policy, HMRC working in close co-operation with relevant stakeholders.
Finally, the Chancellor said he had no immediate plans to introduce a levy on disposable plastic cups, rather like that which applies to carrier bags, but he added that this will be reconsidered if the industry doesn’t make enough progress.
Instead, a new ‘packaging tax’ was announced and this would appear to be a new environmental (indirect) tax which will apply to the manufacture and import of plastic packaging that contains less than 30% recycled plastic. The Government is to consult on the detail and implementation timetable.