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Autumn Budget 2017: VAT and duties

ICAEW Tax Faculty provides analysis of the announcements relating to VAT and duties in the Autumn Budget 2017.

VAT: registration and deregistration thresholds

There will be no change to the VAT registration threshold, and it will remain frozen at £85,00 for two years. The government will consider how to address distortions and barriers to growth caused by the threshold, one of the issues highlighted in the recent Office of Tax Simplification (OTS) report on VAT.

The thresholds will continue as follows until 31 March 2020:

  • the taxable turnover threshold that determines whether a person must be registered for VAT will remain at £85,000; 
  • the taxable turnover threshold that determines whether a person may apply for deregistration will remain at £83,000; and
  • the registration and deregistration threshold for relevant acquisitions from other EU member states will also remain at £85,000.

Office of Tax Simplification VAT review

The Chancellor of the Exchequer has written to the Office of Tax Simplification responding to the core recommendations made in its report on simplifying the VAT system, published on 7 November 2017. The Tax Faculty responded to this review in ICAEW REP 79/17.

VAT registration threshold

In response to the OTS’s recommendations, the government will consult on the design of the VAT registration threshold, noting the distorting effect the current threshold appears to have on business behaviour. In the meantime, the threshold will remain at its current level of £85 000 while the issues raised are considered.

VAT administration

The Chancellor appreciates that practical administrative issues are of importance to businesses working within the VAT system, and that those businesses benefit from clear guidance and prompt rulings. He is keen to ensure that progress in this area continues. He has also asked HMRC to consider how to tackle the administrative costs and uncertainty for business when voluntarily disclosing inaccuracies.

Multiple VAT rates

The OTS suggested that HMRC should undertake a comprehensive review of the reduced rate, zero-rate and exemption schedules. The government accepts that the current rates structure is the root cause of much of the complexity in the VAT system, although the ability to amend the scope of the various rates and exemptions is limited to some extent by EU law at present. There may be a review of this area in the longer term.

Partial exemption and capital goods scheme

The report raised concerns about the existing partial exemption regime and capital goods scheme. The Chancellor encourages the OTS to keep working with HMRC and the Treasury in this area. 

Option to tax land and buildings

As part of the introduction of Making Tax Digital for VAT, the online handling of options to tax is to be considered.

Tackling fraud on online marketplaces

Where overseas businesses sell goods to UK consumers via online marketplaces and those goods are in the UK at the point of sale, there will be new rules to hold the online marketplace jointly and severally liable for:

  • any future VAT that a UK business selling goods via the online marketplace fails to account for after HMRC has issued a notice to the online marketplace, ensuring that all sellers are in scope, and
  • any VAT that a non-UK business selling goods via the online marketplace fails to account for, where the business was not registered for VAT in the UK and that online marketplace knew or should have known that that business should be registered for VAT in the UK.

Finance Bill 2017-18 will extend the scope of existing joint and several liability (JSL) rules to achieve this.

The first of these extensions will help tackle the UK hidden economy and eliminate the risk of overseas traders establishing a UK shell company simply to escape the existing JSL regime.

Online marketplaces will also be required to ensure that VAT numbers displayed for third party sellers on their websites are valid. They will also be required to display a valid VAT number when they are provided with one by a third-party seller operating on their platform. There will be a penalty for failing to meet these requirements.

The changes will have effect on and after Royal Assent of FB 2017-18.

Compliance by users of digital platforms

The government expects digital platforms to play a wider role in ensuring their users are compliant with the tax rules. A call for evidence will be published in spring 2018 to explore what more digital platforms can do to prevent non-compliance among their users.

VAT: refunds for Scottish emergency services

Section 33(3) of Value Added Tax Act 1994 will be amended to include the following bodies/class of bodies:

  • The Scottish Police Authority
  • The Scottish Fire and Rescue Service
  • Combined Authorities
  • Fire and Rescue Service Bodies, which become a function of Police and Crime Commissioners (PCC)

The change will have effect on and after Royal Assent of Finance Bill 2017-18. It will enable the listed authorities to recover VAT on costs relating to their non-business activities, where they were previously unable to do so following a reorganisation of the services.

VAT: grouping consultation

At Autumn Statement 2016, a consultation was issued to gather evidence on whether to make changes to the UK VAT grouping provisions. A summary of responses will be published on 1 December 2017. The scope of VAT grouping is to be further considered, taking account of the issues raised and the impact of any potential changes.

The Tax Faculty responded to this consultation, our key points being as follows:

  • The membership of VAT groups should be made as widely available as possible.
  • Membership of a VAT group should remain voluntary in all cases.
  • The concept of control requires further clarification.
  • New eligibility tests for entities other than corporate bodies should be offered as an alternative, and in addition, to the existing tests.

VAT fraud in labour provision in the construction sector

Following a consultation Fraud on provision of labour in construction sector: consultation on VAT and other policy options into options for tackling fraud in construction labour supply chains, the government will introduce a VAT domestic reverse charge to prevent VAT losses. 

A summary of responses to the consultation will be published on 1 December 2017 and a technical consultation on draft legislation for a VAT reverse charge in spring 2018, with a final draft of the legislation and guidance being published by October 2018. ICAEW responded to the consultation in June 2017 ICAEW REP 69/17.

The measure shifts responsibility for paying the VAT along the supply chain to remove the opportunity for it to be stolen and will have effect on and after 1 October 2019. The long lead-in time reflects a commitment to give businesses adequate time to prepare for the changes.

This measure is estimated to bring in extra revenue of £405m in the four years from 2018/19.

It has been decided not to bring in legislative measures highlighted in the consultation to address the fraud in the direct tax construction industry scheme. Instead, HMRC is increasing its compliance response to target the fraud there.

VAT: split payment for online payments

On 1 December 2017 HMRC will published a response document on the call for evidence to develop a split payment model that was launched after Spring Budget 2017.

A split payment model would allow VAT to be extracted from online payments in real time and help to reduce online VAT fraud. The responses to the call for evidence were broadly positive about the concept but highlighted the complexities of implementation. The response document will set out plans for further engagement with external stakeholders, in preparation for a full consultation in 2018.

VAT and vouchers

A consultation paper will be published on 1 December 2017 in advance of legislation in FB 2018-19 to implement certain changes in the VAT treatment of vouchers with effect from 1 January 2019. These will simplify the VAT treatment of vouchers, including the point at which they will become subject to VAT, and in some cases their value for taxation. The aim is to ensure that when customers pay with vouchers, businesses account for the same amount of VAT as when other means of payment are used, aligning the UK with similar changes being made across the rest of the EU.

VAT and APT on tourism in Northern Ireland

A call for evidence will be published in early 2018 on the impact of VAT and air passenger duty (APT) on tourism in Northern Ireland, to report at Budget 2018.

VAT: imports and postponed accounting

The government has stated it recognises that businesses currently benefit from postponed accounting for VAT when importing goods from the EU (acquisition VAT), as well as the importance of such arrangements to business due to the cashflow advantage they provide. It will take this into account when considering potential changes following EU exit and will look at options to mitigate any cashflow impacts for businesses.

Accident Rescue Charities Grant Scheme

A grant will be provided to help accident rescue charities meet the cost of normally irrecoverable VAT. 

Amendment to the Customs and Excise Management Act 1979

New legislation will be introduced to clarify the powers that allow officers of HMRC to use force to gain access to a locked vehicle, when stopping or searching it, which they suspect contains goods liable to forfeiture.

The changes will have effect on and after Royal Assent of FB 2017-18.

Customs examination powers

The powers HMRC officers currently have under s24, Finance Act 1994 will be extended, so they can examine and take account of goods thoroughly, post clearance, inland, where a customs offence is suspected. This will enable an officer to move, open or unpack goods or containers, or require them to be opened or unpacked, and search the containers and anything in them, as well as mark them as necessary.

The changes will have effect on and after Royal Assent of FB 2017-18.

VED rates

Vehicle excise duty (VED) rates for motorcycles, vans and cars registered before 1 April 2017, and first year rates for cars under the post-April 2017 VED system, will be increased by the RPI from 1 April 2018.

VED diesel supplement

A supplement will be applied to new diesel cars registered on and after 1 April 2018, so that the first year rate of VED for a new diesel car will go up by one band. The change will apply to all new diesel cars that do not meet the RDE2 standards.

VED: zero-emisssion taxis

The government will exempt zero-emission capable taxis from the VED supplement that applies to expensive cars. It will also consult on how to define zero-emission capable taxis, ahead of implementation in April 2019.

HGV VED and HGV levy

Rates of VED for heavy goods vehicles (HGVs) will be frozen for the tax year 2018/19, which includes all rates linked to the basic goods rate. HGV levy rates will also be frozen for the tax year 2018/19. There will be a call for evidence on updating the existing HGV road user levy.

Fuel duty rates

Fuel duty rates will remain frozen for the tax year 2018/19.

Rural fuel duty rebate scheme

The rural fuel duty rebate scheme for the Scottish Islands and Isles of Scilly will be extended until 31 October 2023.

Alternative fuels

The existing fuel duty rates for alternatives to petrol and diesel will be reviewed to see if they are appropriate ahead of making decisions at Budget 2018. In the meantime, the government will no longer be bound by the duty escalator policy for liquefied petroleum gas road fuel.

Tobacco futy rates

FB 2017-18 will:

  • increase the duty rates for all tobacco products by 2% above RPI inflation from 18:00 on 22 November 2017; and
  • increase duty for hand-rolling tobacco by an additional 1% above this 2% increase, to 3% above retail price from 18:00 on 22 November 2017.

Tobacco duty rates will continue to increase by a minimum of 2% above inflation until the end of this parliament.

Tobacco minimum excise tax

The minimum excise tax will be set at £280.15 per 1,000 cigarettes. The change will have effect from 18:00 on 22 November 2017.

Alcohol duty rates

All alcohol duty rates will be frozen. There will be no revisions to existing legislation and no new legal provisions will be introduced.

New cider duty band

A new duty band will be introduced with effect from 1 February 2019 for still cider of a strength of at least 6.9% but not exceeding 7.5% alcohol by volume, to encourage the production and consumption of lower-strength ciders. This follows the alcohol structures consultation announced at Spring Budget 2017. The summary of responses to this consultation will be published on 1 December 2017.

Wine dilution

HMRC will review the practice of diluting wine and made-wine after excise duty has been calculated. The aim is to prevent wine producers from unfairly reducing the excise duty they pay on the larger volume of diluted product, and create consistency with all other alcohol sectors.

Gaming duty

A consultation will be published 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.