Registration and deregistration thresholds
There has been pressure on the government to review the rules for VAT registration because thresholds in the UK are significantly higher than those of any other member state of the EU and OECD.
The chancellor stressed the advantage to small businesses whose taxable turnover levels are below the thresholds and confirmed the existing limits will remain in place for 2 years from 1 April 2018.
However, in response to recommendations from the Office of Tax Simplification, the government will consult on the design of the thresholds.
Therefore, the current thresholds will remain until 31 March 2020:
- a person must be VAT-registered when their taxable turnover in the last 12 months has exceeded £85,000 or is expected to exceed £85,000 in the next 30 days
- a person does not need to register if the above limit has been exceeded, but they do not expect to exceed £83,000 in the next 12 months
- a person may apply for deregistration if taxable turnover falls below £83,000 in the preceding 12 months.
The registration and deregistration threshold for relevant acquisitions from other EU Member States will also remain at £85,000, although all intra-community rules are likely to change once the UK leaves the EU.
There are around 4.4 million businesses with taxable turnover below the registration threshold, although 23% of those have registered voluntarily.
There are arguments that non-registered businesses have an unfair advantage over those that have grown and therefore had to register, and that those who arrange their affairs so as not to exceed the threshold, whether legally or otherwise, suppress SME growth.
However, the government has chosen to consult, rather than take immediate action to address those arguments.
The term ‘imports’ currently refers to the purchase and bringing into the UK of goods from outside the EU.
The existing postponed accounting system provides a cashflow benefit to businesses in that they do not have to account for VAT at the point of entry.
The government will now consider what changes are necessary following exit from the EU so that any cashflow implications are mitigated.
Current legislation will be amended, through the forthcoming Finance Bill to ensure UK Combined Authorities and certain fire services in England and Wales will be able to receive VAT refunds.
This applies to the following authorities:
- The Scottish Police Authority
- The Scottish Fire and Rescue Service
- Combined Authorities
- Fire and Rescue Service Bodies, which become a function of Police and Crime Commissioners.
Accident rescue charities will become eligible for a grant under a new scheme designed to cover the cost of otherwise irrecoverable VAT.
Payment with vouchers
The government is to consult on plans to ensure that when customers pay with vouchers, businesses will account for the same amount of VAT as they do for other means of payment.
This would align the UK with similar changes being made across the rest of the EU.
A consultation paper will be published on 1 December 2017, with a view to legislation being introduced in the forthcoming Finance Bill.
The construction industry
A new reverse charge will be introduced to tackle VAT fraud in labour supply chains in the construction industry.
As with other reverse charges, the responsibility for VAT accounting will shift to the recipient of services, in this case to ensure the tax cannot be stolen. The changes will take effect from 1 October 2019.
The period of nearly 2 years before the changes come into effect will give the government time to respond to representations and allow businesses adequate time to prepare.
Online VAT fraud
Online VAT fraud has been partly addressed already in that online marketplaces are jointly and severally liable for any unpaid VAT of overseas traders, but new measures will be introduced to address the hidden economy.
The first change will extend the powers of HMRC to hold all traders jointly and severally liable, including those from the UK. In effect, this will stop overseas traders forming UK shell companies, just to avoid the joint and several liability provisions.
From the effective date, the extended rules will hold online marketplaces jointly and severally liable for any future VAT that a UK business selling goods via the online marketplace fails to account for after HMRC has issued a notice to the online marketplace, ensuring that all sellers are in scope.
It will also apply to any VAT that a non-UK business selling goods via the online marketplace fails to account for, where the business was not registered for VAT in the UK and that online marketplace knew or should have known that that business should be registered for VAT in the UK.
The second change will require online marketplaces to display a valid VAT number when they are provided with one by a business operating on their platform and to ensure those numbers are valid. These changes will come into force on Royal Assent in the spring.
Split payment model for online transactions
As a further means of reducing online fraud and improving how VAT is collected, the government is considering options for a split payment model.
Evidence was called for at the Spring Budget 2017, and the government has announced it will publish a response in December, after which it will issue a call for evidence from online platforms in spring 2018 regarding what further steps can be taken to reduce fraud.
A split payment structure would enable VAT to be extracted from online payments in real time.
The government is aware of the complexities associated with this model and therefore, the response document will announce plans for further engagement with relevant parties prior to the full consultation in 2018.
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