Autumn Budget 2018
The Chancellor’s Autumn Budget speech was relatively light on VAT issues. However, hidden away in the small print were a few interesting changes mainly targeted at avoidance or measures to deal with unfair or unintended outcomes.
The UK’s VAT registration threshold
This is to remain at £85,000 per annum until 2022. This decision follows a consultation which concluded that there was no clear consensus on whether to reduce the threshold or reform the rules. While the UK’s threshold remains relatively high compared with other EU countries, freezing it for what will be a five-year period, will result in many more small businesses having to register than would have been the case if the annual rises in line with inflation had continued.
New rules for vouchers issued on or after 1 January 2019
The Government issued draft legislation to simplify, harmonise and modernise the treatment of vouchers, and to clarify at which point in the supply chain VAT is due. The changes will affect vouchers including gift cards, gift tokens and electronic vouchers but not discount vouchers or money-off tokens.
The new rules will distinguish between single purpose and multi-purpose vouchers. For a single purpose voucher, both the liability to VAT and the place of supply of the underlying goods or services is known at the time of issue. Where VAT is due on the underlying goods or services it will be payable at the point of issue of the voucher and at the point of each transfer or resale of the voucher, wherever a consideration is paid. VAT will not be payable when the voucher is redeemed.
Any voucher which is not regarded as a single purpose voucher is a multi-purpose voucher and any VAT will be payable only when the voucher is redeemed for goods or services. The consideration for that supply will be the amount last paid for the voucher or, in the absence of this information, its face value. Whilst businesses will have had to adjust their systems and processes, the Government would not expect any noticeable change from the consumer’s perspective.
The government wants to bring consistency to the VAT treatment for prepayments. In general, all prepayments where the customer has not received a supply of goods or services (and not received a refund) will be subject to VAT. This is a departure from the basic principal that there must be both a supply and consideration for VAT to apply. Guidance on this is expected to be issued before the end of the year.
Eligibility to join a VAT group
From a date that is still to be determined, the Government has announced a relaxation of the VAT grouping conditions and will allow non-corporate entities, such as a partnership or an individual, to join a VAT group with the corporate entities if it controls all the members in the VAT group.
VAT groups and bought-in services
HM Revenue & Customs (“HMRC”) will revise its guidance to clarify which services received from overseas need to be regarded as ‘bought-in services’ (as opposed to services provided in-house) and are therefore subject to UK VAT under the reverse charge when supplied cross border. The changes will not come into effect before 1 April 2019.
Ending ‘offshore looping’ in the insurance sector
With effect from 29 March 2019, input tax recovery will be restricted for insurance intermediaries who export their services outside of the EU if the underlying supply of the insurance is made to consumers within the UK. This is intended to level the playing field with insurance providers solely based in the UK. It brings an end to HMRC’s dissatisfaction with the current rules that have led to insurance providers setting up outside the EU but often with an intermediary incurring all the running costs in the UK that is entitled to full VAT recovery.
Making Tax Digital (“MTD”)
Update on timeline and six-month delay for some businesses
HMRC has published an updated timeline for the pilot schemes, testing and the mandatory compliance with the service, including agreeing to delay the scheme for a small minority of businesses. VAT-registered businesses with a taxable turnover above the VAT threshold are required to fully adopt MTD, keep records digitally and use software to submit their VAT returns from 1 April 2019.
However, this date has been deferred to 1 October 2019 for trusts, ‘not for profit’ organisations that are not set up as a company, VAT divisions, VAT groups, those public sector entities required to provide additional information on their VAT return (such as Government departments, NHS Trusts), local authorities, public corporations, traders based overseas, those required to make payments on account and annual accounting scheme users.
It is also worth noting that the first year (i.e. between 1 April 2019 and 31 March 2020) HMRC will allow a general ‘soft landing period’ for businesses that are required to have digital links between all parts of their functional compatible software. During this period HMRC will accept the use of ‘cut and paste’ as being a digital link.
Simplifications for suppliers of digital services and the Mini One Stop Shop (“MOSS”)
On 1 January 2019 two simplifications will come into effect.
First, UK businesses providing electronically supplied services to consumers in other EU countries will only be required to register overseas or optionally use the MOSS scheme if the total value of digital supplies to EU customers exceeds an annual threshold of €10,000 (sterling equivalent).
Second, non-EU businesses, which are already registered for VAT for other purposes, will be allowed to use the MOSS scheme to account for VAT on sales of digital services to EU member states.
Subject to an agreement on VAT arising out of the Brexit negotiations, the first simplification may be short lived for UK businesses, whilst the second may be very welcome.
If you wish to discuss anything in this article, please speak to your usual contact at Blick Rothenberg or Alan Pearce or Antje Forbrich.