22 November 2017

Autumn Budget 2017: VAT and other taxes

A summary of the key changes announced by the Chancellor during the Autumn Budget 2017 in relation to VAT and other taxes.

VAT: small businesses and importers

The Chancellor announced that the VAT threshold would remain at £85,000 for at least two years.

In doing so, Philip Hammond resisted the pre-Budget lobbying to reduce the VAT threshold to bring it more into line with the rest of Europe. It had been argued that the current high threshold creates a barrier to the growth of small businesses, as it is a disincentive to exceed it. However, HMRC is going to consult on the future design of the VAT threshold – so watch this space.

The de-registration limit of £83,000 has also been frozen for two years.

Budget documents also included news on the postponed accounting system used by businesses that import from other EU countries (currently referred to as ‘acquisitions’ within the Single Market). Under the postponed accounting system businesses avoid the need to fund the import VAT before being able to reclaim it via their quarterly VAT returns.

The Government has indicated that it recognises the importance of these arrangements and will take them into account when considering changes in the light of the potential exit from the Single Market in 2019. Although in the small print, this is a significant and major development because UK businesses importing from the EU were becoming increasingly alarmed about the negative VAT cash flow impact they appeared to be facing. For example, the UK imports around £5 billion per month from Germany alone, which means that UK businesses would potentially have to fund £1 billion of VAT per month, for up to two to three months.

  • VAT grouping: the results of the recent consultation are to be published on 1 December 2017.
  • VAT treatment of vouchers: simplification is intended from 1 January 2019 following a consultation commencing on 1 December 2017.
  • VAT fraud in the provision of labour in the construction sector: in response to a perceived fraud whereby suppliers collect output VAT and disappear, HMRC is to consult on the possibility of extending the reverse charge mechanism to make the purchaser responsible for the VAT accounting on incoming labour services.
  • Police Scotland and the Scottish Fire and Rescue Service: s33 of the VAT Act 1994 will be extended to allow these bodies a full recovery of input VAT incurred on costs directly associated with their non-business activities.
  • Air passenger duty rates from 1 April 2019: long-haul standard rate increased to £172; long-haul higher rate increased to £515; short-haul and economy long-haul rates frozen.
  • Excise duties:
    • vehicle excise duty rates for cars, motor cycles and vans are to rise in line with inflation;
    • a separate diesel supplement will be introduced for cars (not vans) registered on or after 1 April 2018 that do not meet the RDE2 standards;
    • fuel duty rates continue to be frozen;
    • alcohol duty rates are all frozen, but the Government intends to introduce a new band for strong white ciders in 2019;
    • tobacco duty is to be increased by 2% above the RPI from 22 November 2017 (3% for hand-rolling tobacco).
  • Gaming duty: the Government will publish a consultation in early 2018 on gaming duty return periods to seek views on bringing the administration of gaming duty more into line with the other gambling duties. It will also seek views on removal of the requirement to make payments on account.
  • Single-use plastics waste: the Government will launch a call for evidence in early 2018 on how the tax system or charges could help to reduce the amount of single-use plastic waste.

Online VAT fraud

In order to tackle VAT fraud, the forthcoming Finance Bill is to introduce joint and several liability provisions in relation to online marketplaces. This means:

  • any future UK VAT that a UK business using the online marketplace fails to account for after the issue of an HMRC notice against the platform provider will be payable by that provider;
  • the platform provider will also be accountable for the VAT that any non-UK business selling goods via the online market place fails to account for, if the platform provider should have known that the non-UK business was liable to be VAT registered; and
  • the online marketplace must show the third party’s VAT registration number.
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