The Budget 2018 VAT changes

The budget on 28 October 2018 was a relatively quiet one for VAT.  This is not very surprising and quite welcome. The issues that Making Tax Digital (MTD) and Brexit is likely to cause for VAT accounting - particularly for import/export businesses – is quite enough for most businesses to cope with.

 

The days of commenting on the perennial favourite – the rise in the VAT registration threshold are long over as the VAT registration and de-registration threshold continues to be frozen at the current limits of £85,000 to register and £83,000 for deregistration.

 

There is the long term potential for the threshold to either remain frozen permanently or be removed entirely as the Office of Tax Simplification has advised HMRC to consider if the threshold is appropriate given that many countries have no minimum registration threshold.

VAT grouping will be extended in 2018/19 to include as yet undefined non corporate bodies. This could be a welcome move where VAT groups are controlled by or share common control with partnerships or a sole proprietor. It would simplify VAT accounting between the bodies and avoid the risk of VAT on cross charges being omitted. The VAT group rules for bought in services and the definition of a UK fixed establishment will also be tightened up to prevent VAT loss with international corporate groups.

 

The exemption for education providers will be extended to include bodies that are registered with the Office for Students in the Approved (fee cap) category to treat their supplies of education as exempt from VAT.

A split payment model may be introduced so that VAT will be accounted for in real time at the point of payment where the sale is made by an overseas business via an online retail platform and then paid direct to HMRC.  This is an attempt to block overseas businesses that are liable to, but omit to, register for UK VAT and thus avoid their UK VAT obligations. 

Advisors of, and businesses that trade via online platforms, should seek VAT advice as this is a complex area and it is quite common for UK and non UK businesses to account for VAT on online sales incorrectly creating a loss to their profit.

Other changes are aimed at VAT planning schemes as detailed below.

Measures are being introduced to block VAT planning schemes where insurance companies “looped’ supplies to associated businesses outside the EC who then made a supply to the UK customer. The schemes allowed the UK insurer to recover VAT on related costs thus avoiding an irrecoverable VAT charge.

The rules relating to the VAT treatment of prepayments for goods and services where the customer omits to collect the goods or use the services. VAT will become due on the prepayment. This will impact on a number of different businesses such as fitness centres where customers typically pay in advance and then – like the writer of this article- fail to attend the gym!

A requirement will also be introduced to compel suppliers to issue a credit note when there is a reduction in the underlying price of a supply.

If you have any questions relating to the above budget changes or require VAT advice on any issue please do not hesitate to contact our free VAT helpline.

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