VAT and other taxes

Centenary funding from VAT receipts
A £10 million donation will be made to the Armed Forces Covenant Fund Trust to support veterans with mental health needs to mark the centenary of the armistice, using VAT collected from the sale of commemorative items. In addition, grants of up to £8 million will be made available for refurbishment of village halls to a value equivalent to the VAT chargeable on such projects, and £1.7 million for school educational programmes in schools to mark the 75th anniversary of the liberation of concentration camps.

VAT registration threshold
Following on from the previous measure to maintain the £85,000 VAT registration threshold until March 2020, the threshold will remain unchanged for a further two years from 1 April 2020 until April 2022, and the deregistration threshold will remain at £83,000.

Digital services tax
A UK digital services tax will be introduced from April 2020 for established technology giants (rather than start-ups). This will not be an online sales tax falling on consumers but will be paid by profitable companies who generate at least £500 million globally a year, and is expected to raise £400 million a year.

VAT and vouchers
Following consultation on the simplification of the rules in relation to vouchers, the government will legislate in Finance Bill 2018/19 to implement EU legislation. This will ensure that the correct amount of VAT is charged on what the customer pays, irrespective of whether payment is with a voucher or other means of payment. Affected parties will need to consider the impact of any changes on their own VAT accounting positions.

VAT domestic reverse charge for construction sector As part of its aim to tackle ’Missing Trader’ fraud, the Government will be introducing a VAT domestic reverse charge for the construction sector. This will have effect from 1 October 2019 and secondary legislation will be published by the Government, alongside the Budget to implement this change.

VAT and higher education
VAT law will be amended to ensure continuity of VAT treatment for English higher education providers under the Higher Education and Research Act by enabling bodies registered with the Office for Students in the Approved (fee cap) category to exempt their supplies of education.

Alternative method of VAT collection: ‘split payment’
To reduce online VAT fraud on cross-border e-commerce, an Industry Working Group will be established and the government will publish a response to the consultation launched at Spring Statement 2018. The Working Group will address some of the main challenges associated with the split payments model for collecting tax from offshore traders selling tax free into the UK via the internet, and will involve close cooperation with stakeholders.

VAT Specified Supplies Order
The Government has confirmed that it will legislate to prevent VAT avoidance (known as ‘looping’) which involves UK insurers setting up associates in non-VAT territories and using these associates to supply their UK customers (allowing them to reclaim VAT on costs that UK based competitors are unable to reclaim). This means that insurers will need to review the VAT they currently reclaim and identify whether any of it relates to offshore loops, as once the new rules take effect, this is likely to result in additional costs to the business.

VAT grouping
Legislation will be introduced in the Finance Bill 2018/19 to extend the eligibility for certain non-corporate entities to join a VAT group.

Revised VAT grouping guidance will also be issued (and effective from 1 April 2019) to:
 
  • Amend the definition of ‘bought in services’ to ensure that such services are subject to UK VAT. This is in line with the anti-avoidance provisions that affect VAT groups which have an overseas member, from which they procure certain services that are then supplied onto fellow VAT group members in the UK.
  • Provide clarity to businesses on HMRC’s protection of revenue powers and treatment of UK fixed establishments.
  • Organisations with a VAT group that include UK fixed establishments of overseas entities should therefore consider whether they could be subject to challenge from HMRC and in particular, should check whether the fixed establishment criteria still apply.

Unfulfilled supplies
From 1 March 2019, all prepayments for goods and services will be brought into the scope of VAT where customers have been charged VAT but have failed to collect what they have paid for and have not received a refund.

Price adjustments
Stricter rules will be introduced for how and when adjustments to VAT should be made following a reduction in price. In particular, Regulation 38 of the VAT Regulations 1995 (SI 1995/2518) will be tightened to ensure that credit notes are issued to customers where a change in the price has occurred.

New plastic tax
A new tax will be introduced from April 2022 on the manufacture and import of certain plastics (those containing less than 30% recycled plastic) to support sustainable packaging. The Government will consult on the detail and implementation timetable.

Duties

Fuel duties
Fuel duties will be frozen for a ninth successive year.

Alternative fuels
The difference between alternative and main road fuel duty rates will be maintained until 2032 to support the de-carbonisation of the UK transport sector. This will be subject to review in 2024.

New worldwide harmonised light vehicles test procedure (WLTP)
The impact of WLTP on Vehicle Excise Duty (VED) and company car tax (CCT) will be reviewed and reported on in the spring. WLTP aims to provide a closer representation of ‘real-world’ fuel consumption and CO2 emissions.

Vehicle Excise Duty (VED)
From 1 April 2019 VED rates for cars, vans and motorcycles will increase in line with RPI. To support the haulage sector, the Government will freeze the Heavy Goods Vehicle (HGV) VED for 2019-20.

Vehicle Excise Duty (VED) Vans
The Government will shortly publish a summary of responses from the consultation on VED reform for vans, published in May 2018, and will set out proposals to introduce environmental incentives from April 2021. Bands and rates will be set out ahead of Finance Bill 2019/20.

Vehicle Excise Duty (VED) Blood Bikes
The tax treatment of the transportation of blood and medical supplies by the national charity Blood Bikes with other emergency vehicles will be aligned through introduction by the government of an exemption for the purpose-built vehicles operated by Blood Bikes from April 2020.

Company vehicles
From 6 April 2019 fuel benefit charges will increase in line with RPI and the van benefit charge will increase in line with CPI.

Alcohol duties
Duty rates on beer, most cider and spirits will be frozen for the next year, supporting patrons of pubs. The usual duty increases will be implemented for most wine and higher strength sparkling cider, and ‘white ciders’ will be taxed at a new higher rate (duty band) from 1 February 2019. The Government will also legislate to ban post duty dilution from April 2020.

Soft Drinks Industry Levy (SDIL
The Government will legislate in Finance Bill 2018/19 to make the SDIL a common duty with the Isle of Man.

Tobacco duties
Tobacco duties will continue to increase by 2% above Retail Price Index (RPI) inflation with effect from 6pm on 29 October 2018, with the exception of tobacco for heating, which will take effect on 1 July 2019.

Minimum Excise Tax
The Minimum Excise Tax for cigarettes will rise to £293.95 per 1,000 cigarettes, effective from 6pm on 29 October 2018.

Gaming duty accounting periods and bands
The Government will legislate in Finance Bill 2018/19 to remove the requirement for casinos to pay gaming duty on account and to allow the carry forward of losses between accounting periods. The return period for gaming duty will remain 6 months. The bands to determine payment of gaming duty will be frozen from April 2019, while the changes to gaming duty accounting periods are implemented.

Remote gaming duty
Remote gaming duty (currently 15%) will increase to 21% for accounting periods beginning on or after 1 October 2019.

Air Passenger Duty
For the tax year 2020-2021, the long haul rates will increase in line with the Retail Price Index (RPI) and short haul rates will remain unchanged. There will be no changes to the VAT or APD regimes in Northern Ireland at this time.

Landfill Tax
The standard and lower rates of Landfill Tax will increase from 1 April 2020 in line with the Retail Prices Index (RPI) and will apply to taxable disposals made, or treated as made, at relevant landfill sites and unauthorised waste sites.

Aggregates Levy Rates
Aggregates Levy rates will be frozen for 2019-20, but the intention is for the Levy to return to index-linking in future.

Carbon Emissions Tax
In the event of a ‘no deal’ scenario, the UK will cease to participate in the EU Emissions Trading System (EU ETS) from exit day, and will introduce a tax on carbon dioxide emissions (and certain other emissions) produced by UK stationary installations currently in the EU ETS. The tax would be effective from 1 April 2019. This would impact around 1,000 installations that currently participate in the EU ETS (generally electricity generators or manufacturing plants).

Carbon price support (CPS):
The Government will freeze the CPS rate at £18/tCO2 for 2020-21. From 2021-22, the Government will seek to reduce the CPS rate if the Total Carbon Price remains high.

Climate change levy (CCL)
The electricity rate will be lowered in 2020/21 and 2021/22. The gas rate will increase in 2020/21 and 2021/22 so it reaches 60% of the electricity main rate by 2021/22. Other fuels, such as coal, will continue to align with the gas rate. The discount for sectors with Climate Change Agreements will change to reflect the change in CCL main rates.

Reducing admin for charities
HMRC has listened to calls from the charity sector and announced several measures that will go some way to reduce charities’ admin burden.
The most welcome change updates the non-primary purpose trading limits, which have been static for many years. The limits enable charities to carry out a small amount of non-primary purpose trading without being subject to tax. The lower limit has now been increased from £5,000 to £8,000 where a charity’s relevant turnover is less than £32,000; the upper limit has increased from £50,000 to £80,000 where a charity’s relevant turnover is in excess of £320,000.

Many charities do undertake a small amount of non-charitable trading, so this update will save them the admin time and costs associated with running a trading subsidiary. The change takes effect from 1 April 2019 for incorporated charities and 6 April 2019 for unincorporated charities.
In a second measure, HMRC has increased the limit of the Gift Aid Small Donation Scheme (GASDS) to £30. This scheme allows charities to collect small amounts without the need for a declaration, while still being able to claim the gift aid uplift – a valuable source of income. This measure will take effect from 6 April 2019, subject to legislation.

A final announcement benefitting charitable shops is the update to the Retail Gift Aid Scheme. Current rules require relevant shops to write to donors annually, but this has been changed to once every three years where donated goods raise less than £20 per annum.