As predicted by Alan Pearce, VAT partner at Blick Rothenberg, the government has committed to reviewing the VAT import regime in the run up to Brexit.
Businesses currently benefit from accounting for VAT on EU purchases by off-setting the cost via their VAT returns. The government has recognised the importance of such an arrangement and the cash flow advantage it provides. In today’s Budget, the government has said it will take this into account when considering the potential changes required when the UK leaves the EU and will look at options to mitigate any cash flow impact.
Alan commented: “This is a welcome announcement by the government. Any proposed measures should not only provide a remedy for the adverse cash flow caused by Brexit but should also put the UK on the same footing as many other EU countries that already allow a postponement of import VAT.”
VAT on construction services
In an attempt to tackle VAT fraud in the construction industry, the government announced today that it will introduce a domestic ‘reverse charge’ VAT scheme for construction services.
This will shift responsibility for paying VAT along the supply chain in order to remove the opportunity for it to be stolen. Changes will have effect on and after 1 October 2019, and this long lead-time will be adequate for businesses to prepare for the change.
Alan commented: “This change will make the recipient of taxable construction services liable for the VAT that the supplier would otherwise have charged. Such a regime has worked well in other areas and not only protects government revenues from fraud but makes administration and cash flow easier for businesses.”
Tougher times ahead for online marketplaces
In today’s Budget the government announced a packages of measures to extend HMRC’s powers and ensure that both overseas and UK online retailers pay their fair share of VAT.
The government will bring forward legislation to hold online marketplaces jointly and severally liable for any unpaid VAT of UK traders, as well as overseas traders, that use their platforms. The aim is to help tackle the UK hidden economy and eliminate the risk of overseas traders establishing a UK shell company simply to escape the existing regime.
Further legislation will also make online marketplaces joint and severally liable for any VAT that a non-UK business selling goods on their platforms fails to account for, where it is not registered for VAT in the UK, and the online marketplace knew, or should have known, that the overseas business should have been registered for UK VAT.
In addition, an online marketplaces will be required by law to verify the validity of their customer’s UK VAT numbers and display these on their websites.
The government is also going to consult next year on how digital platforms can play a wider role in ensuring their users are compliant with the tax rules.
Alan comments: "HMRC is clearly concerned that some overseas traders have taken steps to get around the rules introduced last year by making online marketplaces joint and severally liable for any unpaid VAT. These measures are a necessary response to ensure that all online retailers (whether UK or overseas) play by the same rules as traditional high street stores."
For more information, please contact VAT partner Alan Pearce at firstname.lastname@example.org