Budget 2020 - VAT
E-publications to be zero-rated
Zero-rating currently applies to books, magazines and other printed publications but their digital counterparts were regarded as supplies of services and subject to VAT at the standard rate.
Legislation will be introduced from 1 December 2020 to bring e-publications into line with their physical counterparts and make them subject to VAT at the zero rate. Publications affected are:
- e-magazines; and/or
- academic e-journals.
Postponed accounting to apply to all imports of goods
Subject to certain conditions, from 1 January 2021, the VAT usually payable at importation will instead be accounted for via the VAT return for the period in which the goods are entered into free circulation.
This not only postpones the point at which it has to be paid, but also provides the potential to recover the same VAT as input tax on the same VAT return.
VAT on sanitary products
Women's sanitary products have so far been subject to VAT at the reduced rate. From 1 January 2021, the VAT charged on sanitary products will be reduced to zero rate, effectively abolishing it on the following products:
- products that are designed, and marketed, as being solely for use for absorbing, or otherwise collecting, lochia or menstrual flow, but excluding protective briefs or any other item of clothing;
- panty liners, other than panty liners that are designed as being primarily for use as incontinence pads; and
- sanitary belts.
Duty- and tax-free goods
A long-term passengersʼ policy consultation will be published to gather views on the potential approach to duty- and tax-free goods following the UKʼs departure from the EU and after the transition period.
Exemption of fund management services clarified and extended
The exemption of fund management services is to be clarified.
The Value Added Tax (Finance) Order 2020 (SI 2020/209), announced on 4 March 2020 and effective from 1 April 2020, amends VATA 1994, Sch. 9, Grp. 5 to include the management of ‘qualifying pension funds’ and remove restrictions on the type of assets a close-ended collective investment undertaking can invest in for its management to qualify for exemption.
An industry working group is to be set up to review how financial services are treated for VAT purposes.
Changes to the treatment of call-off stock
Simplification rules previously announced to the treatment of call-off stock when goods are removed from an EU member state to the UK, or vice versa, will be introduced with retrospective effect from 1 January 2020.
VATA 1994, Sch. 4B provides, subject to certain conditions, that a supplier will make a supply of call-off stock in the member state of origin when the customer calls off the stock in the destination state and the customer will account for acquisition tax as appropriate. This avoids the need for suppliers to register for VAT in the member state of destination.
Sch. 4B also contains provisions for certain other events such as when the stock is unsold after a period of 12 months or diverted for sale to a third party.
Partial exemption and the Capital Goods Scheme
The Government will continue to engage with stakeholders following their recent call for evidence on the simplification of partial exemption and the Capital Goods Scheme. A response will be published in due course.
Extension of special refund scheme for public bodies
S4C is to be added to the list of bodies in VATA 1994, s. 33 later this year which will allow it to recover VAT incurred on its public service activities. A review will be conducted in spring 2020 to establish whether other broadcasters should be given similar treatment.
Amendment to the Agricultural Flat Rate Scheme
Following consultation with stakeholders, new entry and exit rules will apply to this scheme from 1 January 2021.
Businesses with an annual turnover from farming related activities not exceeding £150,000 will be eligible for the scheme.
Should their annual turnover from farming related activities exceed £230,000, they will be required to notify HMRC immediately, deregister from the scheme and register for VAT instead.
Businesses with an annual turnover from non-farming related activities in excess of £85,000 will still be required to register for VAT and therefore be ineligible for this scheme.
Domestic reverse charge for building and construction services
As previously announced, the implementation of legislation to extend the domestic reverse charge to certain building and construction services will be delayed.
The Value Added Tax (Section 55A) (Specified Services and Excepted Supplies) Order 2019 (SI 2019/892), designed to tackle missing trader fraud in this sector, will now be implemented from 1 October 2020.