UK | VAT measures announced in Budget

The UK spring budget has seen the Chancellor announce new measures for tackling VAT avoidance and evasion, together with an increase in the registration and deregistration thresholds.

VAT Avoidance

One of the measures is in regards to the removal of the use and enjoyment provisions for business to consumer mobile phone services. The rationale for this change is that it will resolve the inconsistency where UK VAT is applied to mobile phone use by UK residents when in the EU, but not when outside the EU. Instead, UK VAT will apply to all charges for the services. It will also ensure mobile phone companies cannot use the inconsistency to avoid UK VAT and bring UK VAT rules into line with the internationally agreed approach. Further details on this should be published shortly.

VAT Evasion

This measure follows up the announcement from the 2016 Budget in which the Government is looking at tackling overseas sellers that use online marketplaces for sales within the UK. VAT evasion is occurring because the overseas sellers are charging UK VAT to consumers yet not registering or declaring and paying that VAT to HMRC. This allows them to undercut online and high street retailers on price.

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.

A “call for evidence” has been published by HMRC in respect of this change which can be found here. Comments need to be made by 30 June 2017.

VAT Registration & Deregistration Thresholds

From 1 April 2017 the VAT registration threshold for established businesses will increase from £83,000 to £85,000 and the deregistration threshold from £81,000 to £83,000.