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Key VAT updates for corporate businesses
Keri Pay, Partner, VAT
After the Chancellor’s speech highlighted “an economy back on its feet”, the Budget brought with it updates to VAT which will impact a variety of organisations and sectors.
VAT registration thresholds
This has been frozen at £85,000 and the de-registration threshold at £83,000 until at least 31 March 2022. This will allow for the Office of Tax Simplification to further consider concerns it had raised with regard to problems with the thresholds. The time period also allows for due consideration of the options that could be adopted when the UK leaves the EU and is able to potentially adopt a more flexible approach to VAT registration.
Insurance sector anti-avoidance measures
A very specific anti-avoidance measure will be introduced to prevent the use of offshore loops in the insurance sector. Such loops had enabled UK based operators to obtain a VAT advantage not available to UK based operators, in effect allowing VAT recovery in what should be an exempt sector. While very specific to the sector and affecting only a minority of taxpayers, it is indicative of HMRC seeking legislative backing to prevent what it sees as aggressive tax planning.
Treatment of vouchers
The UK is committed to complying with EU Commission requirements up until the point at which the UK leave the EU. As such the UK will legislate to meet its obligations to implement rules with regard to the treatment of vouchers for VAT purposes. The new rules should simplify treatment for a number taxpayers involved in the issue, purchase, sale and redemption of vouchers. At present vouchers generally result in two supplies, one being that of services (of receiving the voucher) and another of goods and services when redeeming the voucher. The new measure will eliminate this duality and result in a single supply of the underlying goods or services against which the voucher is redeemed. The rules will cover simple vouchers such as are redeemable against a single item (e.g. a book token) and more complex gift vouchers which might be redeemable in a number of situations for different items (e.g. a high street voucher). The new rules will only effect vouchers sold after 1 January 2019.
Preferred creditor status
The government intends to legislate to protect taxpayers’ money in respect of taxes that business hold on a temporary basis which is properly due to HMRC, such as VAT, PAYE or national insurance. In these instances employees and customers have paid taxes to a business that should be passed on to HMRC, but in insolvency this would not ordinarily be the case. The measure will, in certain circumstances, place HMRC as a preferential creditor for these taxes allowing them to recover more from the business ahead of other creditors. The measure will be introduced with effect from April 2020.
Partner, Head of VAT and Customs Duty services
+44 (0)20 7842 7387
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