In today’s budget, the Chancellor of the Exchequer made the following announcements on VAT:

VAT Registration

The annual VAT registration limit has been increased from £83,000 to £85,000 in line with inflation.

The deregistration limit has been increased from £81,000 to £83,000.

Registration in respect of acquisitions from other Member States has also been increased to £85,000.

Notes:  The UK’s VAT registration threshold is the highest in the EU. Businesses trading below the threshold can choose to register voluntarily. This may be appropriate in order to recover input tax on purchases (where the addition of VAT on sales would not create issues).

It is understood that the increase in the threshold will prevent around 4,000 businesses from having to register for VAT by the end of the 2017 to 2018 financial year.

VAT: ‘Split Payment’ model

It was announced that: Some overseas traders avoid paying UK VAT, undercutting online and high street retailers and abusing the trust of UK consumers who purchase goods via online marketplaces. Building on the measures introduced in Budget 2016, the government will shortly publish a call for evidence on the case for a new VAT collection mechanism for online sales. This would harness technology to allow VAT to be extracted directly by the Exchequer from online transactions at the point of purchase. This is often referred to as a ‘Split Payment’ model. This is the next step in tackling the non-payment of VAT by some overseas traders selling goods online to UK consumers”.

Use and enjoyment provisions for business to consumer mobile phone services

The government will remove the VAT use and enjoyment provision for mobile phone services provided to consumers. The measure will bring those services used outside the EU within the scope of the tax. It will also ensure mobile phone companies can’t use the inconsistency to avoid UK VAT. This will bring UK VAT rules in line with the internationally agreed approach

Making Tax Digital for Business 

And that, in a nutshell, is all Philip Hammond had to say directly on VAT.  However, via the Making Tax Digital for Business (MTDfB) Policy Paper, it was announced that businesses, self-employed people and landlords will be required to start using the new digital service from:

• April 2018 if they have profits chargeable to Income Tax and pay Class 4 National NICs and their turnovers are in excess of the VAT threshold
• April 2019 if they have profits chargeable to Income Tax and pay Class 4 NICs and their turnovers are below the VAT threshold
• April 2019 if they are registered for and pay VAT
• from April 2020 if they pay Corporation Tax

Businesses, self-employed people and landlords with turnovers under £10,000 are exempt from these requirements.

It was further announced that a one year deferral from the mandating of MTDfB for unincorporated businesses and landlords with turnovers below the VAT threshold. This means that only those businesses with turnovers in excess of the VAT threshold with profits chargeable to Income Tax and that pay Class 4 NICs will be required to start using the new digital service from April 2018.

I suppose that we should be grateful that there were not too many changes to VAT announced (I’m sure there will be many more as a result of Brexit…….).