30 October 2018

The Chancellor announced a number of changes to VAT

An overview of the changes to VAT

VAT registration threshold

Following on from the Governments previous announcement to maintain the £85,000 VAT registration threshold until March 2020, they have now announced that the threshold will remain unchanged for a further two years from 1 April 2020 until April 2022, and the deregistration threshold will remain at £83,000.

VAT and vouchers

Following consultation on the simplification of the VAT rules on vouchers, the government will introduce legislation to ensure that the correct amount of VAT is charged on what the customer pays, irrespective of whether payment is with a voucher or other means of payment. Businesses selling vouchers will need to consider the impact of any changes on their own VAT accounting positions.

VAT domestic reverse charge for construction sector

As part of its aim to tackle ’Missing Trader’ fraud, the Government will be introducing a VAT domestic reverse charge for the construction sector. This will come into effect from 1 October 2019 and secondary legislation will be published by the Government, alongside the Budget to implement this change.

VAT and higher education

VAT law will be amended to ensure continuity of VAT treatment for 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 their supplies of education.

Alternative method of VAT collection: ‘split payment’

To reduce online VAT fraud on cross-border e-commerce, an Industry Working Group will be established and the government will publish a response to the consultation that took place earlier this year. The Working Group will address some of the main challenges associated with the split payments model for collecting tax from offshore traders selling goods into the UK via the internet, and will involve close cooperation with stakeholders.

VAT Specified Supplies Order

The Government has confirmed that it will introduce new legislation to prevent VAT avoidance (known as ‘looping’).  These arrangements involve UK insurance companies setting up associate companies in other countries to supply their UK customers (allowing them to reclaim VAT on costs that UK based competitors are unable to reclaim). This means that insurers will need to review the VAT they currently reclaim and identify whether any of it relates to offshore loops, as once the new rules take effect, this is likely to result in additional costs to the business.

VAT grouping

Legislation will be introduced in the Finance Bill 2018/19 to extend the eligibility for certain non-corporate entities to join a VAT group.

Revised VAT grouping guidance will also be issued (and effective from 1 April 2019) to:

  • Amend the definition of ‘bought in services’ to ensure that such services are subject to UK VAT. This is in line with the anti-avoidance provisions that affect VAT groups which have an overseas member, from which they procure certain services that are then supplied onto fellow VAT group members in the UK.
  • Provide clarity to businesses on HMRC’s protection of revenue powers and treatment of UK fixed establishments.
  • Organisations with a VAT group that include UK fixed establishments of overseas entities should therefore consider whether they could be subject to challenge from HMRC and in particular, should check whether the fixed establishment criteria still apply.

VAT on unfulfilled supplies

From 1 March 2019, all prepayments for goods and services will be brought 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.

VAT on price adjustments

Rules will be introduced to confirm how and when adjustments to VAT should be made following a reduction in price. In particular, the law will be tightened to ensure that credit notes are issued to customers where a change in the price has occurred.

Centenary funding from VAT receipts

A £10 million donation will be made to the Armed Forces Covenant Fund Trust to support veterans with mental health needs to mark the centenary of the armistice, using VAT collected from the sale of commemorative items. In addition, grants of up to £8 million will be made available for refurbishment of village halls to a value equivalent to the VAT chargeable on such projects, and £1.7 million for school educational programmes in schools to mark the 75th anniversary of the liberation of concentration camps.

Digital services tax

A UK digital services tax will be introduced from April 2020 for established technology giants (rather than start-ups). It will be paid by profitable companies who generate at least £500 million globally a year, and is expected to raise £400 million a year.