Autumn Budget 2017 – VAT announcements

Today’s Budget contained a number of announcements about VAT.


To the relief of many businesses there will be no change to the VAT registration threshold, and it will remain frozen at £85,00 for two years. The government will consider how to address distortions and barriers to growth caused by the threshold. The threshold was one of the issues raised in the recent Office of Tax Simplification (OTS) report on VAT, and the government has responded to the OTS on its other recommendations.


Other VAT changes are to tackle avoidance and evasion and to enable Scottish emergency services to obtain VAT refunds. The government is also going to consider changes to the VAT grouping rules, following consultation.


OTS report on the simplification of VAT

The Chancellor of the Exchequer has written to the Office of Tax Simplification (OTS) responding to the core recommendations made in its report on simplifying the VAT system, published on 7 November 2017. Details of the report are in our news item at the time.


VAT registration threshold

In response to the OTS’s recommendations, the government will consult on the design of the VAT registration threshold, noting the distorting effect the current threshold appears to have on business behaviour. In the meantime, the threshold will remain at its current level of £85 000 while the issues raised are considered.


VAT administration

The Chancellor appreciates that practical administrative issues are of importance to businesses working within the VAT system, and that those businesses benefit from clear guidance and prompt rulings. He is keen to ensure that progress in this area continues. He has also asked HMRC to consider how to tackle the administrative costs and uncertainty for business when voluntarily disclosing inaccuracies.


Multiple VAT rates

The OTS suggested that HMRC should undertake a comprehensive review of the reduced rate, zero-rate and exemption schedules. The government accepts that the current rates structure is the root cause of much of the complexity in the VAT system, although the ability to amend the scope of the various rates and exemptions is limited to some extent by EU law at present. There may be a review of this area in the longer term.


Partial exemption and capital goods scheme

The report raised concerns about the existing partial exemption regime and capital goods scheme. The Chancellor encourages the OTS to keep working with HMRC and the Treasury in this area.


Option to tax land and buildings

As part of the introduction of Making Tax Digital for VAT, the online handling of options to tax is to be considered.


The Tax Faculty responded to this review in ICAEW REP 79/17.


Tackling fraud on online marketplaces

Where overseas businesses sell goods to UK consumers via online marketplaces and those goods are in the UK at the point of sale, there will be new rules to hold the online marketplace jointly and severally liable for:


  • any future VAT that a UK business selling goods via the online marketplace fails to account for after HMRC has issued a notice to the online marketplace, ensuring that all sellers are in scope, and
  • any VAT that a non-UK business selling goods via the online marketplace fails to account for, where the business was not registered for VAT in the UK and that online marketplace knew or should have known that that business should be registered for VAT in the UK


It will also require online marketplaces to ensure that VAT numbers displayed for third party sellers on their websites are valid. They will also be required to display a valid VAT number when they are provided with one by a third-party seller operating on their platform. These requirements will be supported by a regulatory penalty.


VAT refunds for Scottish emergency services

Section 33(3) of Value Added Tax Act 1994 will be amended to include the following bodies/class of bodies:


  • The Scottish Police Authority
  • The Scottish Fire and Rescue Service
  • Combined Authorities
  • Fire and Rescue Service Bodies, which become a function of Police and Crime Commissioners (PCC)


The change will enable the listed authorities to recover VAT on costs relating to their non-business activities, where they were previously unable to do so.


Consultation on VAT grouping

At Autumn Statement 2016, a consultation was issued to gather evidence on whether to make changes to the UK VAT grouping provisions. A document summarising the responses will be published on 1 December 2017. The scope of VAT grouping is to be further considered, taking account of the issues raised and the impact of any potential change.


The Tax Faculty responded to this consultation, our key points being as follows:


  • The membership of VAT groups should be made as widely available as possible.
  • Membership of a VAT group should remain voluntary in all cases.
  • The concept of control requires further clarification.
  • New eligibility tests for entities other than corporate bodies should be offered as an alternative, and in addition, to the existing tests.

Fraud in labour provision in the construction sector   

The measure shifts responsibility for paying the VAT along the supply chain to remove the opportunity for it to be stolen and will have effect on and after 1 October 2019. The long lead-in time reflects a commitment to give businesses adequate time to prepare for the changes. It has been decided not to bring in legislative measures highlighted in the consultation to address the fraud in the direct tax Construction Industry Scheme. Instead, HMRC is increasing its compliance response to target the fraud there.

A technical consultation on draft legislation for a VAT reverse charge will be published in spring 2018, with a final draft of the legislation and guidance being published by October 2018. This follows a consultation, from which a summary of responses will be published on 1 December 2017.