Autumn Budget 2018 VAT measures

VAT registration threshold

The VAT registration threshold will remain frozen at £85,000 until 5 April 2022. The deregistration limit will remain at £83,000. The Budget releases note that the Office of Tax Simplification has recommended a significant reduction in the threshold because it can encourage businesses not to grow in order to remain under the threshold. The registration threshold will be reviewed post Brexit.

 

VAT: Unfulfilled Supplies

From 1 March 2019 all prepayments for goods and services will be brought into the scope of VAT where customers have failed to collect what they have paid for and have not received a refund. A Brief giving full details of the change will be published before the end of the year (OOTLAR 2.27). As well as goods, we understand that HMRC also consider that this covers pre-paid hotel rooms where the customer fails to show up. It will be interesting to see what else HMRC considers is caught.

 

Vouchers

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 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.

 

VAT grouping

The right of companies and limited liability partnerships under common control to join a single VAT group registration will be extended to non-corporates including individuals, partnerships and trusts, under conditions set out in the Finance Bill. Grouping will remain optional. Revised VAT grouping guidance will be issued to: 

• amend the definition of ‘bought in services’ to ensure that such services are subject to UK VAT; and

• provide clarity to businesses on HMRC’s protection of revenue powers and treatment of UK fixed establishments. 

 The changes will have effect on and after 1 April 2019. The draft guidance will be made available to business groups in November.

 

Online marketplaces

A new system of registration and regulation of online marketplaces has been put in place over the previous 12 months 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 been developed in consultation with stakeholders. A ‘reverse charge mechanism’ will apply to supplies of construction services to VAT registered clients from 1 October 2019. The supplier will no-longer charge VAT on specified supplies, but instead the customer will putthe VAT on purchases as output tax on the VAT return (and recover it as input tax where eligible).

This will require a significant change of systems for those affected, both as suppliers and customers.

 

Making Tax Digital – VAT

The majority of VAT registered businesses will be required to maintain their VAT records using ‘functional compatible software’ from the first VAT return period starting on or after 1 April 2019.

It was announced in October that a limited range of ‘more complex’ businesses will not be required to comply with the new rules until 1 October 2019.

Concern has been expressed by Parliamentary committees and professional bodies that full-scale testing of the system has only recently started and awareness of the requirement amongst businesses is still patchy, but in the absence of further statement to the contrary, it must be assumed that this major change to the VAT compliance regime will proceed as scheduled.