Budget News

The budget is a somewhat quiet one from a VAT perspective but could indicate that more wide ranging changes are on the horizon. 

The headline grabbing news is the change to stamp duty, which whilst not VAT related, may well result in many more questions on the VAT treatment and VAT recovery position for new houses given that first time house buyers will be able to purchase the majority of properties stamp duty free. This could result in an increase in new home construction.

As VAT consultants, of more interest is the seemingly simple change in the VAT registration and de-registration threshold, which will remain frozen for two years rather than increasing year on year. This is an initial response to a report by The Office of Tax Simplification, which recommended that the government

‘should examine the current approach to the level and design of the VAT registration threshold, with a view to seeking out a future direction of travel.’

The government plans to consult on the design of the threshold, which is relatively unique as most EC and non EC countries with a form of indirect taxation have no/extremely low registration thresholds so it is possible that long term the threshold will be removed or at least reduced.

The same report from the Office of Tax Simplification also recommended that the zero rate , reduced rate and exemptions from VAT currently in place should be considered and that the system of administrating VAT by HMRC should be reviewed.  The change to the registration threshold could therefore herald much wider changes being brought in especially once the UK exists the EC.

The legislation allowing HMRC to apply a joint and several liability to online market places where non UK established businesses sell goods to the UK market via an online market where it should have known that the vendor has failed to register and account for VAT in the UK has been extended.  The change will require the online market place to both display the vendor’s VAT number and ensure it is a valid number and not a cloned or hijacked VAT number. The measure will only be applied to non-compliant online market places.

The above is likely to result in an upswing in registration applications and requests for assistance with VAT compliance from non UK businesses selling online.

A measure has been introduced to allow combined authorities, fire and rescue authorities to recover VAT on non-business activities under the same legislation that allows Local authorities to recover such VAT.

The government will be introducing a VAT domestic reverse charge to prevent VAT losses  in construction labour supply chains. The reverse charge will work by moving responsibility for paying VAT along the supply chain. Changes will have effect on and after 1 October 2019 and have major implications for both labour providers and businesses involved in construction.

Some of the other indirect tax changes are that purchasers of diesel cars registered after 1 April 2018 that do not meet the real driving emissions standard will be affected by a supplement to diesel excise duty for new diesel cars registered after 1 April 2018. This will apply to new diesel cars which do not meet the standard set out under Annex IIA of Commission Regulation (EU) 2017/1151 for the second stage of Real Driving Emissions.

Vehicle excise duties will be increased by reference to the retail price index in 2018 to 2019, a measure aimed at ensuring the duties collected are maintained in line with the RPI.

A new Minimum Excise Tax (MET) rate will apply to cigarettes. The total excise duty on a packet of cigarettes will be either the higher of either the MET, or the usual application of duties.

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