Spring Budget 2017: VAT and Indirect Tax
The 2017 Budget produced few, if any, surprises on VAT. The recent focus by the Government on countering VAT avoidance continued. The proposed legislation to counter VAT avoidance by overseas businesses selling goods in the UK through online marketplaces, and the intention to try to prevent VAT fraud in the supply of labour in the construction sector, are examples of the current trend to tackle weaknesses in the system.
VAT Registration and De-Registration Limits
From 1 April 2017, the threshold above which businesses are required to be VAT registered will rise from £83,000 to £85,000, with the de-registration threshold rising from £81,000 to £83,000
Businesses that are close to the limit, but not VAT registered, should monitor their sales on a monthly basis, so that when they are liable to be registered they apply on time and do not incur unnecessary penalties.
VAT: Overseas online sellers of goods to the UK
The Government announced that it will look at alternative methods of collecting VAT from overseas businesses selling goods to UK consumers via online marketplaces. On 20 March 2017 it will publish a call for evidence on the case for an alternative collection method.
The Government previously indicated its intention to counter overseas businesses avoiding UK VAT, and it is now following up on this. Any reasonable measure to cut VAT avoidance is to be welcomed and we look forward to details of the proposals.
VAT: Use and enjoyment provisions for business to consumer mobile phone services
The Government announced that it will remove the VAT “use and enjoyment” provisions that apply where consumers use their phones outside the EU, rendering the charges subject to UK VAT. This will bring the UK in line with general international practice.
The total VAT raised by this measure may not be too significant, but this will be a logical step in bringing the UK in line with international practice.
VAT: Fraud in the provision of labour in the construction sector
The Chancellor announced that on 20 March it will begin consulting on a range of policy options to counter fraud in supplies of labour within the construction industry. One such option is to make the customer liable for the VAT under the reverse charge procedure.
At least one court case, where three defendants were convicted, has prompted the Chancellor to consider changing the law to try and prevent these fraud cases needing to be resolved through long and expensive court cases.
Below is a summary of a measure previously announced:
VAT flat rate scheme
From 1 April 2017 there will be a new (higher) VAT flat rate of 16.5% for “businesses with limited costs”. Currently, businesses determine which flat rate percentage to use by reference to their trade sector. From 1 April 2017, however, they must also determine whether they meet the definition of a limited cost trader, which will be one whose costs of goods is one of the following: zero, less than 2% of turnover; or less than £1,000 per year.