VAT-registration threshold frozen until 2022
The VAT-registration threshold was frozen at £85,000 until 1 April 2020 in the last Budget, and the Chancellor extended that until 1 April 2022.
HMRC had consulted on the VAT-registration threshold following suggestions from the Office of Tax Simplification.
It is thought in some quarters that the registration threshold is a barrier to the growth of business and so this issue is likely to be revisited in subsequent Budgets.
The Chancellor did state that he would be “looking at the possibility of introducing a smoothing mechanism once the terms of the EU exit are clear”.
Until then the current VAT-registration threshold will remain as follows:
- A business must be VAT-registered when its taxable turnover in the last 12 months has exceeded £85,000 or is expected to exceed £85,000 in the next 30 days alone.
- A business may be able to avoid registration if the above limit has been exceeded, but it does not expect to exceed £83,000 in the next 12 months.
- A business may apply for deregistration if it can satisfy HMRC that its taxable turnover will fall below £83,000 in the next 12 months.
The construction industry: reverse charge
The Government is publishing legislation separately to the Budget in respect of the reverse charge that will come into effect from 1 October 2019.
The recipient of relevant construction services will be required to account for the VAT on the supply as a reverse charge.
The aim is to prevent missing trader fraud where subcontractors abscond with the VAT collected in respect of works on a building project.
However, this Budget will provide for the introduction of a statutory instrument.
This will enable HMRC to determine that the reverse charge does not count towards taxable turnover when an unregistered business considers whether it has exceeded the VAT-registration threshold.
The UK will implement EU legislation in respect of the VAT treatment of vouchers.
From 1 January 2019, businesses that sell vouchers or allow customers to redeem them will need to be clear as to whether the voucher they sell is a single-purpose voucher (SPV) or a multi-purpose voucher (MPV).
With SPVs, only one rate of VAT applies to the goods or services which can be bought with it and where the place of supply is certain.
VAT will need to be accounted for, where applicable, on the sale of the voucher by the person who sells it as if it had sold the goods or services in question.
An MPV is where the VAT rate of the goods or services redeemable is not known. For instance, where a voucher could be used to buy zero-rated books or standard-rated DVDs.
Here, the VAT due is only accountable when the customer redeems the voucher with the retailer providing the goods.
Unfulfilled supplies and price reductions
Budget 2018 states that VAT will be due on any prepayment for goods and services where the customer has failed to collect what they have paid for but are yet to receive a refund.
Furthermore, there will be new rules which state businesses will have to issue credit notes and adjust VAT returns within set time limits if it provides retrospective price reductions.
Specified supplies anti-avoidance
This measure blocks a tax-planning scheme that some insurance and financial services companies were employing.
The current VAT legislation states that financial and insurance services are VAT-exempt. This ordinarily means that VAT incurred on expenditure relating to these activities is blocked for recovery.
However, to encourage the supply of such services to overseas customers, the VAT legislation allows the recovery of VAT on costs related to these supplies. They are known as ‘specified supplies’.
Some insurance and financial companies were setting up their own overseas associated companies, which supplied their ultimate UK customers. This structure previously allowed the UK companies to recover VAT that their competitors were not entitled to.
Collection of VAT ‘split payment’
The Government will publish a response to its consultation on 7 November 2018.
This will highlight ways the banking and payment sectors will be able to directly collect VAT payments on behalf of HMRC from online suppliers of goods, primarily overseas.
The Government will legislate in Finance Bill 2018/19 to extend the eligibility to join a VAT Group.
The legislation will allow non-corporate entities, such as partnerships and sole proprietors that control companies, to join a VAT group with those companies.
Budget 2018 documentation states the legislation will define the phrase ‘bought in services’ to ensure such services do not escape VAT and will also provide clarity to businesses on HMRC’s revenue protection powers and the treatment of UK fixed establishments.
Higher education VAT exemption
The VAT law will be amended to ensure supplies of education made by providers under the Higher Education and Research Act registered with the Office for Students in the Approved (fee cap) category will remain VAT-exempt.
The Chancellor could not give VAT relief to either the commemorative items sold in respect of the First World War or the refurbishment works which were being provided to local village halls (often to commemorate the War).
Nevertheless, it was announced that the VAT collected would go towards a £10m grant to the Armed Forces Trust.