Click on the headlines below to navigate our indirect tax analysis from the Autumn Budget:
Freeze of VAT registration threshold extended to 2022
VAT group registration changes
Unfulfilled supplies – new VAT treatment of deposits
VAT adjustments on reductions in price — HMRC to amend Regulation 38
Construction industry reverse charge
Remote gaming duty rate to increase to 21%
Split payments mechanism for VAT: consultation response
VAT treatment of vouchers
Anti-avoidance measure for insurance offshore loops
The VAT registration threshold will be frozen at £85,000 for two more years. In the 2017 Budget, the Chancellor announced a freeze until 2020 to allow the Government time to consult on possible reforms to the current level of the threshold. The Office of Tax Simplification had identified the threshold as an obstacle to business growth and as having a distortive effect on the market in some business-to-consumer sectors. In this year’s Budget, it was announced that the freeze to the threshold will be extended until 31 March 2022. The deregistration threshold will also remain frozen at £83,000.
After a lengthy consultation process, new eligibility rules for membership of a VAT group registration will be introduced next year. VAT grouping provides cash flow and administrative benefits by allowing entities under common control to register for VAT under a single VAT registration number, account for VAT on a single VAT return and not charge VAT on supplies between group members.
From 1 April 2019, VAT grouping will not be restricted to incorporated entities. An individual or a partnership will be allowed to join a VAT group, provided it controls the companies it is grouped with and is entitled to register for VAT in its own right. That condition does not apply to companies who may join even if they are dormant or wholly exempt.
On the same date, some other changes will be made to the rules for operating VAT groups. These will clarify which overseas services can be classified as a ‘bought in service’ which is subject to a reverse charge when a partly exempt VAT group buys in services through an overseas group member. Changes are also planned to the treatment of UK fixed establishments, as well as other revenue protection measures. Further details will be available in updated guidance, which will be made available to stakeholders in November 2018.
A change will be made to the VAT treatment of deposits on services or goods that have been paid for in advance but which the customer does not use/collect. This change is due to take effect from 1 March 2019 and is a result of a number of court cases where a differing VAT treatment has applied due to the nature of the deposit paid.
The draft legislation has not yet been published, but HMRC has stated that further information will be available before the end of the year. The change may mean that only fully refundable deposits paid as security will be outside the scope of VAT. This would result in some businesses paying more VAT than at present, but it will ensure that a consistent treatment will be applied to deposits.
Legislation will be introduced with effect from 1 September 2019 that will affect VAT accounting for price reductions. Businesses will be required to send a credit note to their customers as well as make the adjustment to their VAT records within a specified time limit.
The draft legislation will not be available until 2019, but the introduction of a time limit will affect many businesses, as currently there is no time limit applicable to a VAT adjustment which arises from a reduction in the consideration for a supply.
The Government has confirmed its previous intention to introduce a domestic reverse charge on the supply of certain construction services made in the UK with effect from 1 October 2019. Under the new rules, a VAT-registered business which supplies construction services to another VAT-registered business will be required to issue a VAT invoice stating that the service is subject to the reverse charge. The recipient must then account for the VAT on that supply itself through its VAT return, instead of paying the VAT to the supplier. The recipient may then recover that VAT amount as input tax, subject to the normal rules. Specifically, the reverse charge will apply where the recipient then makes an onward supply of the same construction services.
The rate of remote gaming duty (RGD), which is payable by online gaming businesses, is to increase next year. RGD, which is calculated on the gaming provider’s profits, will increase from 15% to 21% with effect from 1 October 2019. The Government says this increase will compensate for a shortfall in gaming taxes once a maximum stake of £2 is applied to Fixed Odds Betting Terminals as part of a tightening of gaming regulations to protect problem gamblers.
The Government is continuing to explore the introduction of a split payment mechanism to combat loss of VAT on sales of goods through online platforms by businesses in the UK. Under the split payments proposal, one party in the payment chain would be required to pay the VAT on each sale directly to HMRC and pay only the balance (ie the net price) to the vendor. This proposal involves using payment technology to enable real-time extraction of VAT, which would then be deposited with the tax authority.
On 7 November 2018 the Government will publish a summary of responses to the most recent phase of its consultation process, which will include details of its plans to create an industry working group to explore the next steps towards implementation.
Legislation will be introduced that will significantly affect the VAT treatment of all vouchers issued on or after 1 January 2019.
Many more vouchers will become what are called Single Purpose Vouchers (SPVs), where the VAT is accounted for when the voucher is sold and not when the goods or services are purchased using the voucher. An SPV is a voucher where the VAT rate applicable and the place of supply of the goods or services is known when the voucher is sold. The issue and sale of such a voucher will be treated as a supply of the underlying goods or services, with VAT due as appropriate. This change means that many more businesses will have to account for VAT earlier than at present and will also have to account for VAT even if the voucher is not used fully. A business will not therefore be able to benefit from non-redemption or ‘breakage’ on such vouchers.
A voucher which is not an SPV will be called a Multi-Purpose Voucher (MPV). An MPV is a voucher where the place of supply or the rate applicable to the goods or services purchased is not known at the time that the voucher is issued. A voucher that could be used in a number of countries or one that could be used to purchase goods liable to different VAT rates would be an MPV.
VAT is only due when the MPV voucher is actually used, which would enable a business to obtain the benefit of non-redemption. However, VAT would be due by the person who redeemed the voucher on the price that the last person paid for the voucher and not the price that it was first sold for. If that price paid by the final person is not available, VAT would be due on the face value of the voucher. This change means that businesses will pay VAT on a higher figure than at present and will therefore need to make adjustments to their accounting systems.
Another change is that the issue and sale of an MPV is defined not to be a supply for VAT purposes. No VAT will therefore be due on the issue or sale of an MPV, and VAT will not be recoverable in respect of the issue or the sale of such vouchers. Many businesses that only buy and sell MPVs may want to change their business model so that they act only as an agent in the sale of the voucher and make a taxable charge to the issuer of the voucher for this service.
Legislation will be introduced with effect from 1 March 2019 that will further restrict the ability of insurance intermediaries to recover VAT. The original intention to restrict recovery in this area was announced in a Ministerial Statement in July 2018, but the extent of the planned restriction has now been reduced.
VAT recovery will no longer be available to insurance intermediaries supplying their intermediary services to a principal supplier of insurance established outside the EU, if the final customer of the insurance is located within the UK. Originally the restriction was to apply if the final customer was located anywhere in the EU.
This change has been introduced following a number of high-profile court cases. The proposal will result in reduced VAT recovery for many insurance intermediaries, but it is good news that the measure is not as widely drawn as was originally planned.
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