There were not many new announcements for VAT. Highlights were the introduction of new anti-avoidance measures to target fraud and artificial transactions and the current VAT registration and deregistration thresholds to remain unchanged for a further two years.
VAT registration and deregistration thresholds to remain the same
The VAT registration and deregistration thresholds will remain the same for a further two years until April 2022.
The current taxable turnover registration threshold at £85,000 is the highest in the EU, where the average is far lower. The Office of Tax Simplification report published in 2017 recognised the distortions the threshold can cause and recommended a Government review. In the absence of clear guidance from a call for evidence, the registration threshold and the deregistration threshold (£83,000) will remain the same until 31 March 2022, which extends the two year period previously announced in last year’s autumn Budget.
"Although a high threshold can benefit smaller businesses who do not need to register for VAT, it is seen as creating a ‘cliff-edge’ and a bunching effect of businesses choosing to remain below the threshold, which limits their growth. Any reduction to the threshold will need to be implemented carefully, to ensure that it does not simply shift the cliff-edge effect to a lower level. Maintaining the threshold at the same level for four years is only seen as a temporary measure until the Government revisits the matter and provides a longer term solution."
When will it apply?
There will be no change until April 2022.
VAT anti-avoidance measures announced
Further measures are being introduced to combat VAT avoidance.
A number of new VAT measures have been announced as follows:
- VAT grouping - the definition of ‘bought in services’ from outside the UK will be amended to ensure that VAT under the reverse charge provisions is not avoided. The new measure will come into effect from 1 April 2019;
- VAT and vouchers – legislation will be brought in for vouchers issued on or after 1 January 2019, which will prevent non-taxation or double taxation where the vouchers are used in the UK and EU;
- insolvencies – from 6 April 2020, the Government will effectively become a preferential creditor;
- unfulfilled supplies – the Government will amend the rules from 1 March 2019 to bring all prepayments for goods and services into the scope of VAT where customers have been charged VAT and have not received the supply or a refund;
- insurance – this measure restricts the ability of UK service providers to recover VAT on supplies to off-shore brokers or insurers where the underlying contract is with a party in the UK. This will come into effect on 1 March 2019.
"These announcements will not come as a surprise to businesses given recent communications from HMRC."
When will it apply?
The measures will apply variously from 1 January 2019 to 1 April 2019, except for the changes concerning HMRC preference in insolvencies, which will come into effect from 6 April 2020.
Stamp duty land tax surcharge for non-UK residents
A consultation will be launched in January 2019 on the potential implementation of a 1% stamp duty land tax (SDLT) surcharge for non-UK residents buying residential property in England and Northern Ireland.
UK resident and non-UK resident taxpayers currently pay the same rates of SDLT on purchases of residential property in England and Northern Ireland. The Government is proposing to introduce a 1% surcharge to increase the amount that would be payable by non-UK residents.
Any change will not automatically apply in Scotland or Wales. Responsibility for such taxes has been devolved to their respective governments, who have subsequently introduced a separate land and buildings transactions tax (Scotland) and a land transactions tax (Wales).
Little detail is currently available about how the proposal would work in practice. It will presumably be levied in addition to existing SDLT rates and surcharges, such as the existing 3% surcharge for purchasing a second residence. This would mean that a non-resident taxpayer purchasing a £1m property could in some circumstances pay almost twice as much SDLT as a UK-resident replacing a main residence. If the Government moves forward with this measure, it will be interesting to see if the change is replicated by the Welsh and Scottish governments, as they did following the introduction of the 3% surcharge for the purchase of additional residences.
When will it apply?
These measures are subject to consultation with no fixed date for implementation.