business woman using a laptop

Budget 2020: VAT, Good things come in small packages

Keri Pay, Partner, VAT
11/03/2020
business woman using a laptop

HMRC announced on Thursday 30 April that this zero rating will instead apply from 1 May 2020. Read our insight Zero rating on Electronic E-publication from 1 May 2020.

Although it was a relatively quiet Budget from a VAT perspective, in amongst the more obvious headlines there were some announcements that will have a day-to-day impact on many businesses. We have highlighted the main points so they are not overlooked.

VAT on e-publications

The government will introduce legislation to apply a zero rate of VAT to e-publications from 1 December 2020. To make it clear that means e-books, e-newspapers, e-magazines and academic e-journals are entitled to the same VAT treatment as their physical counterparts. 

This will be welcome news for anyone providing such services, specifically charities and membership organisations, of which many have switched from hard copy newsletters to digital copies over the past few years, and could therefore give rise to a useful increase in funding. In addition, this still leaves an outstanding question of whether VAT has been wrongly paid in the past and there is already litigation proceeding through the courts on this point. 

Abolition of tampon tax

There was no surprise when the Chancellor announced the removal of VAT on women’s sanitary products from 1 January 2021. The government is keen to show that its freedom from the EU will allow it to make changes in taxation that it perceives to be of social or moral importance. 

While we don’t envisage a wide impact for our clients, the question as to the way in which VAT might be used as a tax to support morally or socially important issues is interesting. It should be noted that this change was largely as a result of consistent and persistent lobbying of government over a number of years, an example by which providers of goods and services in the charity sector should feel encouraged.

VAT postponed accounting

From 1 January 2021 postponed accounting for VAT will apply to all imports of goods, including from the EU. This will provide an important boost to those VAT registered UK businesses which are integrated in international supply chains as they adapt to the UK’s position as an independent trading nation. 

This will mean that VAT does not need to be paid at the time of importation into the UK, which may have caused significant cashflow issues, as at present there is no such payment necessary when acquiring goods from the EU. 

It is welcome to see this applying to all imports, EU or otherwise, although it is a measure that keeps being mooted and then withdrawn. It is hoped that it will become law next year. 

VAT on fund management

The extent to which exemption from VAT extends to fund managers charges has been under consideration for a number of years and subject to much litigation. The government plans to clarify, and hopefully thereby simplify, the position through new legislation. VAT treatment and associated VAT recovery surrounding funds in many shapes and forms has been the subject of significant change in the past few years and so clarification is welcome. 

Although this seems to affect a very specific sector this could impact clients who currently suffer VAT on certain fund management charges and are unable to recover the VAT in full. This would effectively reduce the cost to the fund of those services.

VAT on financial services

VAT in respect of financial services is complex, open to very subjective interpretation and based on legislation that did not envisage the current way in which financial services are provided.  Therefore it’s potentially not fit for purpose. As such, the whole sector will be considered by an industry working group to review how financial services are treated for VAT purposes. We would hope this will result in more simplified legislation, with clarity around exemption and we encourage our clients in the sector to play a part in the process when the sector is asked to contribute by the working group.

Consultation on long-term cross-border goods policy

When the transitional period ends on 31 December 2020 the UK will no longer be part of the single market and as such the UK needs to establish a long-term plan for trading relationship with the EU which will include VAT and excise duty treatment. Many of our clients will be affected by the UK’s exit from the EU, and as such are looking for a pragmatic sensible solution to the taxation of ongoing trade that does create barriers to movement of goods. 

While much of this will be determined by the high level negotiations between the UK and the EU, the government will launch an informal consultation on the treatment of goods crossing UK borders after the EU exit transition period. We will be encouraging our clients involved in the import and export of goods to and from the EU to take part.

Consultation on long-term passengers’ policy

In a similar way to businesses, the benefits that individuals enjoy in respect of personal imports of goods will end. The traditional ‘booze cruise’ would potentially be a thing of the past unless measures are put in place to replace the current system. If not, we would fall into the rules that currently apply for non-EU travel which offer much reduced allowances. 

The government is publishing a consultation to gather views on the potential approach to duty and tax-free goods policy after the transition period following the UK’s departure from the EU. This may impact some of our clients but is more likely to be of more personal interest to many.

 

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Robert Warne
Rob Warne
Partner, Head of VAT and Customs Duty services
London