Spring Budget 2017 - VAT snippets
Once again the Budget has only lightly touched on VAT, but there are some interesting points for certain sectors and some more tax for some consumers to pay.
The VAT registration thresholds will increase from 1 April 2017. The registration threshold will increase to £85,000 (from £83,000), whilst the deregistration limit will rise to £83,000 (from £81,000). (For relevant acquisitions of goods from the EU the threshold for registration/deregistration increases to £85,000 from £83,000).
The VAT threshold has also been linked to the implementation of Making Tax Digital (MTD), which will be delayed until April 2019 for unincorporated businesses and landlords with gross income (turnover) below the VAT registration threshold.
The Office of Tax Simplification recently discussed the VAT registration thresholds and whilst the unusually high threshold in the UK assists simplification, it does mean a large sector of the economy falls outside the VAT net. It is also suggested that the threshold acts as a partial brake on the economy whereby smaller businesses approaching the limit would have to stop trading to keep turnover down and avoid the need to register. Could such reasons be a prompt for a future reduction in thresholds? Whilst unlikely, given the interaction with MTD, threshold changes should be monitored in coming years.
Mobile phone costs rise on roaming charges
An increase in VAT on telecoms charges for UK consumers roaming outside the EU was announced. Currently, supplies of telecoms services from businesses to UK consumers are subject to VAT when used in the UK and when used in EU countries, but until this change, not when travelling outside the EU. This latter relief was an optional measure permitted to the UK by EU VAT law. This additional tax will hit holidaymakers and require telecoms operators to update billing systems.
Within VAT there are a number of rules that make a distinction between fellow EU countries and non-EU countries. Post-Brexit this geographic distinction will disappear and other VAT rules will probably be affected (eg financial services). This tax increase on mobile phones could signify the start of a roll-back of some VAT rules in the run-up to Brexit. This announcement indicates future changes are more likely to mean more VAT is payable, rather than less.
The legislation and tax impact notes providing further details on this measure are expected before summer recess.
The Budget announced consultations, starting on 20 March, on two measures to combat VAT fraud.
Firstly, an interesting ‘Split Payment’ idea will be reviewed that looks to collect VAT directly when UK consumers make online purchasers. Many overseas suppliers operating online are not VAT registered here and incorrectly sell VAT-free. To combat this leakage the Government is considering technology solutions that will “allow VAT to be extracted directly from transactions at the point of purchase”. This split payment concept has already been approved by the EU for use in Italy.
Policing the internet is a huge challenge and recent VAT rule changes have targeted online platforms as these represent a pinch-point where the tax can be effectively collected and regulated. It is likely that platform providers will again bear the brunt of the split payment initiative and may require new payment procedures. They may wish to use this consultation to present their case on this increasing compliance burden.
Secondly, supplies of labour in the construction industry are seen as susceptible to fraud. Consultation on a range of options will include a reverse charge where the purchaser of the services (eg the main contractor) accounts for the VAT. Interactions with the Construction Industry Scheme are also under consideration.
Disclosure of Indirect Tax Avoidance Schemes
Measures will come into force on 1 September 2017 to strengthen this regime and regulations will outline the tests to be applied to determine if disclosure is required. The disclosure regime will see promoters of schemes primarily responsible for disclosure and the regime will be applied to all indirect taxes (including the Soft Drinks Industry Levy).
VAT fraud penalty changes
The Finance Bill will introduce new penalty provisions for participating in VAT fraud and it is envisaged company officers will be named where the tax due exceeds £25,000.
The rules for zero-rating motor vehicles adapted for wheelchair use, following consultations, will not be significantly changed.
If you are affected by any of the issues or wish to discuss any VAT matters further, please get in touch with Richard Collier or your usual Mercer & Hole contact.
Date: 9th March, 2017
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