Welcome to this special Budget 2021 edition of Constable’s VAT Focus. In this edition of our regular newsletter we focus on the VAT related announcements from the recent Budget. Most of the changes have been in the pipeline for some time but have been included as part of the Autumn Budget package. We have provided links below to HMRC’s published guidance for those who require more information on these measures.
There have been no changes made to the VAT registration and de-registration threshold, they have remained the same as follows:
- VAT Registration: £85,000
- VAT De-registration: £83,000
Implementation of VAT rules in free zones
This measure will enable the operation of free zones in Great Britain by introducing an additional element to the VAT free zone model. This is a VAT exit charge for goods that have benefited from a zero-rated supply and where, after the goods leave the free zone procedure, there is no onward taxable supply of the goods within a time limit. Legislation will be introduced in Finance Bill 2021-22 to amend the Value Added Tax Act 1994.
This measure will affect VAT registered businesses authorised to operate in the customs site (free zone) of a Freeport.
Notification of uncertain tax treatment for large businesses
This measure will require large businesses to notify HMRC where they have adopted an uncertain tax treatment that HMRC is not already aware of through its ongoing customer compliance relationship. Amounts of Corporation Tax, VAT or Income Tax (via Self-Assessment or PAYE) will be classified as uncertain if the tax treatment to which they relate meets one of two legislative criteria:
- That a provision has been made in the accounts for the uncertainty; or
- That the tax treatment applied is not in accordance with HMRC’s known position.
Businesses will be required to notify HMRC only if the tax advantage exceeds a £5 million threshold within a ‘Relevant Period’ For VAT the relevant period over which the threshold test must be applied is the 12-month period ending on the last day of the last prescribed accounting period (VAT return period) falling wholly within the corporate tax financial year to which it relates.
The measure is intended to help improve HMRC’s ability to identify uncertain tax treatments adopted by those that do not have an open and transparent approach, and to accelerate the point at which discussions on uncertain treatment can occur. This is expected to result in an increase in tax revenue.
The government is still considering a third potential trigger, a substantial possibility that a tribunal or court would find the taxpayer’s position to be incorrect in material respects for possible inclusion later.
The measure will affect large business with either:
- A turnover of more than £200 million per annum
- A balance sheet total over £2 billion
Northern Ireland second-hand margin scheme interim arrangement
This measure will provide for the continuing use of the VAT margin scheme for sales in NI of motor vehicles sourced from GB. Motor vehicles first registered in the United Kingdom prior to 1 January 2021 will be available to sell under the VAT margin scheme in NI.
This measure will affect businesses buying motor vehicles in Great Britain for resale in Northern Ireland. It will become effective with retroactive effect and this cannot occur until an agreement is reached with the EU.
Second-hand Motor Vehicle Export Refund Scheme
This measure provides a power which enables the introduction of a Second-hand Motor Vehicle Export Refund Scheme. Businesses who buy used motor vehicles from GB that are removed for resale in NI or the EU may be able to claim a refund equivalent to VAT on the price paid. This will put businesses in a similar financial position as if they had enjoyed access to the VAT margin scheme for these second-hand vehicles.
This will affect businesses buying eligible used motor vehicles in Great Britain that are removed for resale to Northern Ireland or the European Union.
VAT exemption for dental prostheses imports
The measure deals with an unintended consequence of the Northern Ireland Protocol by providing an VAT exemption for the importation into the UK of dental prostheses. Whilst there is a VAT exemption for supplies of dental protheses in the UK this does not extend to imported items. This creates VAT liabilities on items moved between GB and NI. The measure ensures supplies of dental prostheses by registered dentists and other dental care professionals continue to be exempt between GB and NI.
The changes will apply retrospectively from 1 January 2021.
This measure will affect:
- Registered dentists and other dental care professionals importing dental prostheses into the United Kingdom
- Registered dentists and other dental care professionals moving or supplying dental prostheses between Great Britain and Northern Ireland
Please note that this blog is intended to provide a general overview of the subject. No liability is accepted for the opinions it contains or for any errors or omissions. Constable VAT cannot accept responsibility for loss incurred by any person, company or entity as a result of acting, or failing to act, on any material in this blog post. Specialist VAT advice should always be sought in relation to your particular circumstance.