Budget News – Generally Quiet on the VAT Front

The VAT Registration Threshold is currently frozen at £85,000 until March 2020 and this Budget added another 2 years to this until March 2022. This should draw more businesses into VAT registration over this period but equally runs the risk of depressing economic growth as smaller business may decide to remain trading at levels under the threshold.

We still await on the decision of government on how to act on VAT registration thresholds following the Office of Tax Simplification report. There were rumors of cutting the threshold in half, but the Chancellor had quashed those before Budget Day.

With enrollment in Making VAT Digital linked to those businesses who are VAT registered it could be imagined that a sizeable reduction in the threshold would bring with it a significant increase in the launch and management of Making VAT Digital. So, perhaps not a surprise to see the decision left for this year but don’t hold your breath once Making VAT Digital has settled and especially after the Brexit Deal impact is established.

VAT Anti Avoidance Measures

• Reverse Charge Amendment – not so much a change but a power to make regulations to amend anti avoidance provisions in this area. This is targeting the aspects of Missing Trader Fraud where a supplier invoices for VAT but then doesn’t pay over the VAT they collect from their customers. We will see this “Reverse Charge” come into action from 1 October 2019 when Sub-Contractors in the Construction Industry sector will no longer charge VAT to the Main Contractor as that Main Contractor will use a “Reverse Charge” mechanism to account for the VAT due. Whilst we can see the VAT advantages to HMRC we remain concerned as to the cashflow impact on the sector as it’s realistic to assume that many subcontractors use their VAT receipts as working capital until they need to send their VAT Return and payment off to HMRC.
• Specified Supplies Amendment – this will affect intermediaries in the insurance sector who export their services outside of the EU – so quite a specific sector change to block avoidance using offshore “looping” to secure a VAT advantage where the actual end customer is someone based in the UK and not overseas as the law original intended. The change will take effect from 1 March 2019.

Vouchers – Change effective for Vouchers issued on or after 1 January 2019

This will affect many businesses and sectors, particularly retailers, distributors and in the hotel and hospitality sector, that buy, sell or redeem vouchers and reflects an EU Directive.

The VAT treatment of Vouchers is complicated both in terms of liability of supplies and the tax point of accounting. Currently it is seen that two supplies are being made – of the voucher itself and then of the actual supply of the goods and services related to that voucher.

The new VAT rules will refer to two types of vouchers – Single Purpose or Multi-Purpose. A single purpose one is where, when the voucher is issued the VAT treatment of the future supply to which it refers, and the place of the supply is known – Afternoon Tea in a UK Hotel for example. That’s a taxable supply and VAT is due at the point of issue of the voucher AND at each transfer point of that voucher where consideration is received. This will mean that VAT would NOT be due at the point that the voucher is actually redeemed for that supply.

For a Multi-Purpose Voucher, e.g. a voucher that allows the person redeeming to purchase across a range of goods and services with different VAT liabilities. The goods and services available are not set at the time the voucher is purchased. As a result, there is no clear link to an underlying supply of goods or services to which a VAT liability can be applied – therefore any VAT due is only payable when the voucher is redeemed against the actual purchase made.

For anyone who deals in vouchers, it would be worthwhile to read the proposed changes which you can find here At the same time, if you have any concerns please get in touch as the Centurion team is always happy to chat about VAT.

Local Authorities – Various Grant funding announcements

The Budget announcements related to English Councils but if the Devolved Government adopt similar approaches to grant increases then VAT implications will need to be considered. For example, if more monies come to Wales for:

• Disabled Facilities Grants – are councils clear on what spending qualifies for any Zero-rating Relief and what evidence must be retained?
• Capital Payments to Schools – there have been VAT issues for Voluntary Aided Schools in terms of VAT recovery.
• Funding for High Streets – There will be issues for VAT recovery potentially if costs are incurred on properties which the council does not own
• Village Hall Funding – We are seeing a number of projects relating to this area particularly where a Social Enterprise body is being established to run and deliver such local amenities.
• Funding to encourage Social and Health care collaborations – whether between councils and the charity sector or with the NHS sector – all projects merit a VAT sense check before funding models get signed off. Each sector – Charities; NHS Trusts and Councils operate under differing VAT rules.

We are still seeing a move in the sector to third party delivery of leisure and cultural services which remain an area of VAT sensitivity. The increasing number of projects arising from City Deal Initiatives which are drawing councils into closer interaction with commercial parties remain areas where the VAT flags need to be waved early in the project discussions.

Making sure public funding isn’t lost through an avoidable VAT cost is at the core of our work with the public sector so do make an early call to us as projects arise.