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ICAEW Tax Faculty provides analysis of the announcements relating to VAT in the 2018 Budget.

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VAT registration and deregistration thresholds

The annual taxable turnover threshold, which determines whether a person must be registered for VAT, will remain at £85,000 for a further two years until 31 March 2022. The taxable turnover threshold which determines whether a person may apply for deregistration will remain at £83,000. The registration and deregistration limits for relevant acquisitions from other EU member states will also remain at £85,000.

Registration threshold: reform

In March 2018 the government launched a call for evidence into the current design of the VAT registration threshold, following the recommendations of the Office for Tax Simplification (OTS) report Routes to Simplification for VAT. The call for evidence sought to explore whether the design of the VAT threshold could better incentivise growth and considered policy options for reform.

The responses to this call for evidence were published on Budget day. They have not presented a clear solution to the problems surrounding the VAT registration threshold, and the government says it does not consider there to be a lead option for reform.

The government recognises that the introduction of a smoothing mechanism to ease the financial burden of VAT registration would be welcomed by some stakeholders, providing it does not increase complexity, but will not be implementing such a mechanism at this stage. Under EU law the UK would require a derogation to introduce a new smoothing mechanism. One of the criteria for acceptance would be revenue neutrality, so a mechanism that reduces the financial burden may only be possible in conjunction with a reduction of the threshold.

The government will continue to monitor and evaluate the design of the threshold and simplification schemes, and will look again at the possibility of introducing a smoothing mechanism once the terms of EU exit are clear.

VAT and vouchers

Following consultation, the UK law will to implement EU legislation which ensures that the correct amount of VAT is charged on what a customer pays, irrespective of whether payment is made with a voucher or other means of payment.

VAT grouping

The eligibility to join a VAT group is to be extended to certain non-corporate entities.

In addition, revised VAT grouping guidance will be issued to:

  • amend the definition of ‘bought in services’ to ensure that such services are subject to UK VAT; and
  • provide clarity to businesses on HMRC’s protection of revenue powers and treatment of UK fixed establishments.

Higher education amendments

VAT legislation 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 supplies of education. HMRC will provide further guidance for providers ahead of the 2019/20 academic year.

Alternative method of VAT collection: split payment

A formal response to the consultation launched at Spring Statement 2018 is to be published on 7 November 2018. The aim is to reduce online VAT fraud by third country sellers and improve how VAT is collected on cross-border e-commerce.

The government believes that a split payment model, developed in close cooperation with stakeholders in the banking and payments sectors, could radically improve the way VAT is collected and reduce fraud. It has therefore announced that an industry working group will be established to address some of the main challenges associated with this policy.

Unfulfilled supplies

New rules to bring consistency to the VAT treatment of prepayments will be introduced with effect from 1 March 2019. The change will bring all prepayments for goods and services into the scope of VAT where customers have failed to collect what they have paid for and have not received a refund.

Adjustments to VAT

New rules for the adjustments to VAT following retrospective reductions in the price of goods or services will be introduced in September 2019. Businesses will have to adjust their VAT returns within set time limits and send a credit note to their customers. This will ensure that such adjustments are only made in respect of genuine price reductions.

Guidance for VAT groups on bought-in services

HMRC will revise existing guidance for VAT groups to clarify which overseas services can be classified as bought-in services to ensure that such services are subject to UK VAT. HMRC will share the draft guidance with businesses in November 2018 with a view to implementation from 1 April 2019.

VAT, APD and tourism in Northern Ireland

Following an earlier call for evidence on the impact of VAT and APD on tourism in Northern Ireland, the response to which has now been published, the government has said there re will be no changes at the present time to the rates of VAT on tourism-related services in Northern Ireland or the UK as a whole. There will also be no changes to the APD regime in Northern Ireland.