UK Autumn Budget 2018 – VAT and indirect taxes

Nov 12, 2018

Announcing that there will be no change to the VAT registration threshold until at least 2022 was a welcome move.  Any decrease would have immediately brought more businesses into Making Tax Digital for VAT earlier than anticipated. There was a number of other changes to VAT and indirect taxes announced on Budget day.

VAT measures

VAT registration threshold

Publishing its response to the call for evidence on the design of the VAT threshold, as noted above, there will be no change to the current threshold of £85,000 which will be maintained at this level until April 2022. The government will look again at the possibility of introducing a “smoothing mechanism” once the terms of EU exit are clear.  

VAT grouping

The government will legislate in Finance Bill 2018-19 to extend the eligibility to join a VAT group 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

These guidance changes will be published in draft and will take effect from 1 April 2019.

Vouchers

Following a consultation in this area, the government will legislate in Finance Bill 2018-19 to implement EU legislation which ensures 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.

VAT fraud in labour provision in the construction sector

As announced in the Autumn Budget 2017, and following consultation, the government will introduce a VAT domestic reverse charge to prevent VAT losses through so-called ‘Missing Trader’ fraud. This occurs when traders collect VAT on their sales but go missing before passing that VAT on to HMRC. This will shift responsibility for paying VAT along the supply chain to remove the opportunity for it to be stolen by those traders. The new rules will take effect from 1 October 2019.

Higher education

The government will amend VAT law 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.

‘Split payment’

To reduce online VAT fraud by third country sellers and improve how VAT is collected on cross-border e-commerce, the government is looking at a split payment model. An Industry Working Group will also be established to address some of the main challenges associated with this policy.

VAT specified supplies order

As announced in July 2018, the government will legislate to prevent a version of VAT avoidance (known as ‘looping’) that involves UK insurers setting up associates in non-VAT territories and using these associates to supply their UK customers. This allows them to reclaim VAT on costs that UK based competitors are unable to reclaim. 

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.

Regulation 38

The government will introduce stricter rules for how and when adjustments to VAT should be made following a reduction in price. Secondary legislation will tighten definitions for Regulation 38 and ensure a credit note is issued to customers. This will guarantee businesses are transparent and do not benefit from VAT that is due to the consumer or the Exchequer.

Indirect taxes

Alcohol duty rates and bands

Duty rates on beer, most cider and spirits are frozen. Duty on most wine and higher strength sparkling cider will rise by inflation from 1 February 2019. The government also plans to review the current Small Brewers Relief to ensure it is supporting growth in the sector.

Alcohol structures consultation

As announced at Autumn Budget 2017, the government will introduce a new duty band for still cider and perry from 6.9 percent to 7.5 percent alcohol by volume (abv), to target white ciders. This will be legislated for in Finance Bill 2018-19, and a rate of £50.71 per hectolitre will apply from 1 February 2019.

Tobacco duty rates

Duty rates on all tobacco products will increase by two percentage points above inflation until the end of this Parliament. Hand rolling tobacco will increase by an additional one percentage point. These changes came into effect from 6pm on 29 October 2018.

Minimum excise tax

The minimum excise tax for cigarettes rose to £293.95 per 1,000 cigarettes from 6pm on 29 October 2018.

Tobacco for heating

As announced at Spring Statement 2018, the government will legislate in Finance Bill 2018-19 for a new duty rate for tobacco for heating. In these products processed tobacco is heated (but not burned like conventional tobacco) to produce, or flavour, vapour. This will be set at the same level as hand rolling tobacco and will take effect on 1 July 2019.

Gaming duty accounting periods and bands

As announced in HMRC’s consultation response in July 2018, 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

As announced in May 2018, the rate of remote gaming duty will increase to 21 percent. Both the reduction in maximum stake and increased duty rate will come into effect in October 2019.

Soft drinks industry levy

The government will legislate in Finance Bill 2018-19 to make this a common duty with the Isle of Man.