Changes to VAT and Stamp Duty Land Tax have been designed to support social change. Zero-rating for VAT will be introduced on some products and measures to alleviate homelessness, funded by a surcharge on foreign buyers of UK property. The Government has also announced changes to VAT compliance requirements and plans further engagement with taxpayers to simplify the burden on businesses, particularly in respect of cross-border activities.
Non-UK resident stamp duty land tax surcharge
The Government has announced a 2% stamp duty land tax surcharge on residential property purchases in England and Northern Ireland by non-UK residents.
The Government has confirmed that the proposed stamp duty land tax (SDLT) surcharge for purchases of residential property in England and Wales by non-UK residents will be introduced with effect from 1 April 2021.
The surcharge is expected to apply to purchases by individuals and ‘non-natural persons’, such as companies, trusts and partnerships, and will apply on top of existing SDLT rates.
Full details of the surcharge are yet to be published, but legislation is due to be included in Finance Bill 2020-21. It will only cover transactions involving English and Northern Irish residential property, as Scotland and Wales have separate land transaction taxes.
There will also be transitional rules where contracts are exchanged before 11 March 2020 but complete or are substantially performed after 1 April 2021.
The introduction of the SDLT surcharge was expected as it was first proposed in Budget 2018. There was a consultation on the initial proposals in 2019. The policy aim is to improve affordability of residential property for UK resident purchasers.
One eye-catching element of the announcement, however, was that the surcharge would be set at 2% rather than the 1% previously proposed.
Full details of the proposals are not yet clear, but there were a number of areas raised in the 2019 consultation that will require confirmation, such as the definition of ‘non-UK resident’. For example, the consultation suggested a specific definition of residence for the purposes of the surcharge, which could lead to purchasers being caught by the surcharge even if they are treated as UK resident for other tax purposes. The Government has announced it will shortly release a summary of the responses to the consultation.
It remains to be seen whether the surcharge will have the desired effect on residential property demand, but the Government has stated that funds raised from it will be used to help address rough-sleeping, which is to be welcomed, even if the additional complexity brought in by the surcharge could cause issues for purchasers and advisers.
When will it apply?
From 1 April 2021
Women's sanitary products to become VAT-free
Zero-rating for VAT will apply to women's sanitary products from 1 January 2021.
These products are currently subject to the reduced rate of VAT of 5%, which will be reduced to 0% when the new laws come into force.
Our commentThe announcement was expected after several years of campaigning. The Government will be able to depart from the EU rules and apply zero-rating from January 2021, which is when it intends to bring this change into effect.
When will it apply?
1 January 2021
VAT to be abolished on e-publications
Legislation will be introduced to zero-rate e-publications for VAT from 1 December 2020, clarifying that the tax treatment of these products is in line with their physical counterparts.
The new legislation will apply to online and electronic publications, such as e-books, e-newspapers and academic e-journals. The VAT treatment of these products was the subject of a recent tax case and there has been some confusion as to the correct approach. The Government will consult on this change before it is implemented in late 2020. In his speech, the Chancellor also mentioned that this change is intended to encourage younger children to read.
This announcement will be welcome news for e-publishers and consumers. Various bodies have lobbied the Government for many years to remove the difference in VAT treatment between essentially the same content delivered in physical or online format.
It will be interesting to see how this announcement impacts the ongoing litigation on the historic treatment of e-publications. In the case of News Corp UK & Ireland Limited  UKUT 0404, the Upper Tribunal found that e-newspapers could be zero-rated. In February 2020, HMRC issued a Revenue and Customs Brief confirming that it intends to appeal the matter further.
Given the substantial sums involved, it is unlikely that HMRC will withdraw its appeal regarding the current treatment of e-publications.
When will it apply?
1 December 2020
Other VAT measures in the Budget
A number of other VAT measures have been announced by the Chancellor.
A number of additional new measures have been announced as follows:
- Agricultural flat rate scheme (AFRS) – from 1 January 2021, turnover thresholds will be introduced. Businesses will be able to join the scheme provided that their annual turnover from farming-related activities is below £150,000. A business will be required to withdraw from the AFRS if that turnover exceeds £230,000.
- VAT treatment of goods from overseas sellers - the Government will undertake a consultation in relation to the VAT treatment of goods from overseas sellers.
- Postponed accounting – from 1 January 2021, VAT-registered businesses will be able to account for import VAT on the VAT return, rather than paying import VAT at the time of importation.
- Call-off stock arrangements – in 2019, measures were introduced to harmonise and simplify the treatment of cross-border transactions. This legislation to implement these measures retrospectively will be effective from 1 January 2020.
The postponed import accounting measure will be welcomed by businesses bringing goods into the UK, as it will effectively continue with the cash-flow benefit when the current intra-EU treatment ceases at the end of 2020.
When will it apply?
AFRS and postponed accounting on imports will both come into effect on 1 January 2021.
Call-off stock arrangements are retrospectively applied from 1 January 2020.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.