VAT Budget 2013 summary
The specific VAT changes announced in the Budget are some of the lowest-key for quite some time, possibly a reaction to the outcry last year on pasties, caravans etc and a concern over perceived impact on economic growth. Intriguingly, the General Anti Abuse Rule (GAAR) does not specifically address VAT.
VAT registration thresholds are undergoing their annual update with effect from 1 April (registration threshold increased to £79,000 from £77,000, and deregistration limit increased to £77,000 from £75,000).
Fuel Scale Charges
Fuel scales charges (for calculating VAT claimable on fuel, where some private use is involved) are also being updated with effect from 1 May 2013.
EU Changes to Taxing Cross-Border Sales
The other point of interest was the reference to implementing agreed EU VAT changes from 1 January 2015. These have been discussed for several years now and come as no surprise. These will affect businesses selling online services, broadcasting and telecommunications cross-border to non-VAT registered customers.
Currently these services are taxed in the country where the supplier is based. This has allowed businesses to sell to their (mainly private) EU customers from low-VAT jurisdictions such as Luxembourg, from where they need only charge 15% VAT, and sometimes even lower rates. This gives them an unfair competitive advantage over local suppliers. The 1 January 2015 changes will effectively tax these services in the country where the customer is based such that the customer will pay the same amount of VAT whether they are buying from a local supplier or one based in another EU country.
To prevent businesses having to VAT register in all 27 (soon to be 28*) member states, they will be able to use a “Mini One Stop Shop” IT system that permits them to calculate the VAT they need to charge and collect in each country. This will be paid over to HMRC who will distribute to the other EU tax authorities as appropriate. A similar system exists at present for non-EU businesses (eg US suppliers) and seems to work quite effectively.
Businesses will need to be able to correctly identify the location of their customers and charge them the correct rate of VAT on sales. Those that have not yet addressed customer location will need to do so in the run-up to 1 January 2015 or risk under charging (or even overcharging) VAT. From 1 January 2015 UK businesses may find they need to start charging higher VAT rates than the UK’s 20% on many of their sales, and pricing or margins will need adjusting.
For more information please contact our VAT team on the numbers below.
(*Croatia is due to join 1 July 2013)
Date: 22nd March, 2013
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