VAT and other taxes

VAT: small businesses and importers

The Chancellor announced that the VAT threshold would remain at £85,000 for at least two years.

In doing so, Philip Hammond resisted the pre-Budget lobbying to reduce the VAT threshold to bring it more into line with the rest of Europe. It had been argued that the current high threshold creates a barrier to the growth of small businesses, as it is a disincentive to exceed it. However, HMRC is going to consult on the future design of the VAT threshold – so watch this space.

The de-registration limit of £83,000 has also been frozen for two years.

Budget documents also included news on the postponed accounting system used by businesses that import from other EU countries (currently referred to as ‘acquisitions’ within the Single Market). Under the postponed accounting system businesses avoid the need to fund the import VAT before being able to reclaim it via their quarterly VAT returns.

The Government has indicated that it recognises the importance of these arrangements and will take them into account when considering changes in the light of the potential exit from the Single Market in 2019. Although in the small print, this is a significant and major development because UK businesses importing from the EU were becoming increasingly alarmed about the negative VAT cash flow impact they appeared to be facing. For example, the UK imports around £5 billion per month from Germany alone, which means that UK businesses would potentially have to fund £1 billion of VAT per month, for up to two to three months.
  • VAT grouping: the results of the recent consultation are to be published on 1 December 2017. 
  • VAT treatment of vouchers: simplification is intended from 1 January 2019 following a consultation commencing on 1 December 2017. 
  • VAT fraud in the provision of labour in the construction sector: in response to a perceived fraud whereby suppliers collect output VAT and disappear, HMRC is to consult on the possibility of extending the reverse charge mechanism to make the purchaser responsible for the VAT accounting on incoming labour services. 
  • Police Scotland and the Scottish Fire and Rescue Services: s33 of the VAT Act 1994 will be extended to allow these bodies a full recovery of input VAT incurred on costs directly associated with their non-business activities. 
  • Air passenger duty rates from 1 April 2019: long-haul standard rate increased to £172; long-haul higher rate increased to £515; short-haul and economy long-haul rates frozen. 
  • Excise duties
    • Vehicle excise duty rates for cars, motor cycles and vans are to rise in line with inflation;
    • a separate diesel supplement will be introduced for cars (not vans) registered on or after 1 April 2018 that do not meet the RDE2 standards;
    • fuel duty rates continue to be frozen;
    • alcohol duty rates are all frozen, but the Government intends to introduce a new band for strong white ciders in 2019;
    • tobacco duty is to be increased by 2% above the RPI from 22 November 2017 (3% for hand-rolling tobacco).
VAT fraud in labour provision in the construction sector

The Government will publish a technical consultation on draft legislation for a VAT reverse charge in Spring 2018, with the final draft and guidance to be published by October 2018 and changes to take effect on or after 1 October 2019. The measure shifts responsibility for paying the VAT along the supply chain to remove the opportunity for it to be stolen.

Gaming duty

The Government will publish a consultation in early 2018 on gaming duty return periods to seek views on bringing the administration of gaming duty more into line with the other gambling duties. It will also seek views on removal of the requirement to make payments on account.

Single-use plastics waste

The Government will launch a call for evidence in early 2018 on how the tax system or charges could help to reduce the amount of single-use plastic waste.