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VAT and Budget 2014

Whilst in this budget the Chancellor was almost silent on VAT compared to previous Budgets, doubtless keen to avoid repeating the furore over the “pasty tax” etc, a few items are worth noting.

The main mention was the removal of VAT on the fuel for air ambulances and inshore rescue boats.

However, two more VAT items were tucked away in HMRC’s press releases:

1)    Firstly, the removal of the historic and rather generous inequity relating to prompt payment discounts.  Historically VAT was only due on the discounted price offered for prompt payment, even where the customer did not pay in the requisite timeframe and eventually paid the higher, undiscounted amount. This has been identified as not complying with the EU VAT norm, and as a result is being phased out.  VAT will be due on the amount actually paid by the customer.

This will be introduced with effect from;
 a) 1 May 2014 for supplies of telecommunications and broadcasting, where three is no obligation to issue a VAT invoice; and 
 b) from 1 April 2015 for all other supplies….
……unless of course, for revenue protection purposes, HMRC feel the need to advance these dates for certain supplies.

Many businesses have probably not applied this rule and will not have to alter their IT systems, but those that have, particularly in the telecoms & broadcasting sector will need to review their systems.  That said, many payments from end consumers are made by direct debit or similar so engineering a scenario where the prompt payment discount deadline is invariably not met will have needed a little thought.  Any business wishing to exploit this loophole for the remaining time will need to plan ahead and ensure their IT systems are flexible enough to adjust again in future, possibly at short notice.

2)    Secondly, a proposal has been issued regarding an anti-fraud proposal which would see the introduction of the reverse charge for wholesale sales of gas and electricity between VAT registered businesses.  This will be a nuisance for affected businesses which will need to modify IT systems and implement new VAT return procedures, however no implementation date has been set and informal consultations with industry will continue (they have been ongoing for 2 years already).

Affected businesses not already involved in these discussions with HMRC may wish to throw their hat in the ring to try to influence the process at this stage.

Threshold Changes

The VAT registration thresholds will change with effect from 1 April 2014 as follows:

  • The registration threshold is increased from £79,000 to £81,000;
  • The threshold for applying for deregistration will increase from £77,000 to £79,000; and
  • The threshold for both registration and deregistration for relevant acquisitions of goods from other EU countries will similarly rise from £79,000 to £81,000

Other Indirect Taxes

A number of other indirect tax changes were raised in the Budget, including 15% SDLT on residential property over £500,000 held by certain non-natural persons, the abolition of SDRT for UK unit trusts and OEICs, decreasing the Air Passenger Duty (APD) rate for some long-haul flights, Bingo Duty reduction, the introduction of a higher rate of Machines Games Duty, adjustments to exemptions for the aggregates levy and climate change levy, along with the perennial adjustments to the alcohol and tobacco duty rates and a rolling extension of the exemption from Vehicle Excise Duty for classic cars.

For more detail on these measures please refer to HMRC’s website:



Date: 19th March, 2014
Author: Richard Collier


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