Value Added Tax
Last year the Chancellor announced that the VAT registration threshold will remain frozen at £85,000 until 5 April 2020. He has now confirmed that it will stay unchanged for a further two years after that, until 5 April 2022. The deregistration limit (£83,000) will also stay unchanged. The Budget releases note that the Office of Tax Simplification has recommended a reduction in the threshold because it distorts the behaviour of businesses: they may be restricted from growing by fear of exceeding the limit. The Government prefers to keep a large number of businesses out of VAT altogether by maintaining the threshold at its current level, but will look again at the question once the terms of the UK’s exit from the EU have become clear.
The Government has already published a number of statements about the possible VAT and customs consequences of a ‘no-deal Brexit’, while negotiations continue in the hope of a favourable agreement. There is nothing in the Budget about international trade at all, presumably because it is all too uncertain or sensitive for any meaningful statements to be made.
Significant changes will be made to the VAT treatment of ‘face value vouchers’ that are issued on or after 1 January 2019. ‘Single purpose vouchers’, which can only be used to buy a single category of goods or services (standard rated, lower rated, zero rated or exempt) will be treated as the underlying item when bought and sold. ‘Multi-purpose vouchers’, where the liability of the supply on redemption is uncertain, will be outside the scope of VAT until they are redeemed, when in most cases the face value will be used by the retailer to calculate the output tax. This is a big change from the existing rules for anyone who issues and redeems vouchers, and also for intermediaries who market and distribute them.
The right of companies and Limited Liability Partnerships under common control to join in a single VAT registration will be extended to non-corporates including individuals, partnerships and trusts, under conditions set out in the Finance Bill. Grouping will remain optional.
A new system of registration and regulation of online marketplaces has been put in place over the last year, and comes fully into force in April 2019. Anyone operating an online marketplace should be taking steps to comply with the new requirements.
Construction industry fraud
Measures to counter ‘missing trader fraud’ in the construction industry have also been developed over the last year, in consultation with stakeholders.
A ‘reverse charge mechanism’ will apply to supplies of construction services to VAT-registered customers from 1 October 2019. The supplier will no longer charge VAT on ‘specified supplies’, but instead the customer will put the VAT on purchases as output tax on the VAT return (and recover it as input tax if eligible). This will require a significant change of systems for those affected, both as suppliers and customers. The Budget included an announcement of further technical changes to these rules to make them work as intended.