Tag Archives: Budget

Constable VAT Budget Focus: Autumn 2018


Philip Hammond has delivered the last Budget before the UK leaves the EU in March 2019. He has based the Budget on an assumption of an average free trade deal being struck between the UK and the EU. However, if no agreement can be reached between the two parties, the Chancellor has stated that a different strategy would be necessary and the UK has been working on contingency plans for different possible Brexit negotiation outcomes. Here we look at the key VAT issues which have been covered in the announced Budget issued but will provide continued coverage of any progression in line with Brexit negotiation results.


VAT registration and deregistration thresholds

The VAT registration threshold of £85,000 has stayed at the same level again in this Budget, as has the de-registration threshold of £83,000. It has been confirmed that these will stay in place for the next two years. The effect of this measure, when inflation is factored in, is that there will be an increased number of smaller businesses that are required to register for VAT.


VAT grouping eligibility to be extended

The Government has announced that it will extend the eligibility to join a VAT group to certain non-corporate entities in the Finance Bill 2018-19. This extension will allow partnerships and sole traders to benefit from VAT grouping provided the entry criteria are met.


The treatment of vouchers from 1 January 2019

The Government intends to introduce legislation to give effect to an EU Directive in the UK providing for the VAT treatment of vouchers issued on or after 1 January 2019. It will impact vouchers for which payment has been made and which will be used to make a purchase.

The aim of the measure will be to harmonise the rules for the taxation of vouchers within the EU and, ideally, to prevent any non-taxation or double taxation of goods or services. This is not a true Budget measure as the new rules were agreed sometime after extensive discussions within the EU.


Specified Supplies Order

For a brief summary and an analysis of the Specified Supplies Order, we recently provided coverage of the issues presented by Brexit and the Specified Supplies Order on our website. There has been some clarification around some of the issues associated with the Order offered as part of the Budget 2018. In essence, the Order allows companies who export certain financial services from the EU to third countries to reclaim input VAT on what would normally be an exempt supply giving no right to recovery.


HMRC believe the Order is currently being abused by companies who form agreements with associates located outside the EU and re-supply those services back to UK consumers meaning that the company can reclaim the input VAT on the specified supply and gain a VAT advantage. This measure seeks to prevent “looping” by restricting the applicability of the Order to cases where the final consumer is not in the UK. We are not convinced that either existing UK measures or the proposed measures are compliant with the EU VAT directive and, were the UK to remain in the EU, we would be surprised to find that the proposed measure is not challenged in the Courts. Brexit may nullify this consideration.


VAT reverse charge anti-avoidance amendment

A measure has been introduced which allows for the disapplication of the existing anti-avoidance provision in relation to any specified reverse charge. Originally the provisions were introduced to prevent criminals avoiding reverse charge measures by supplying non-VAT registered businesses instead and charging VAT. This measure will allow regulations to be made to prevent unintended consequences for small businesses who trade below the VAT threshold which will remain at £85,000.


VAT and higher education

It has been announced that the Government will amend VAT law to enable bodies registered with the Office for Students, in the approved (fee cap) category, to exempt supplies of education. This is a measure aimed at ensuring continuity of VAT treatment for English higher education providers following the Higher Education and Research Act 2017. Constable VAT will follow the development of this policy, if your business is likely to be affected then please do not hesitate to contact Constable VAT.


Unfulfilled supplies and prepayments

HMRC’s policy around the VAT treatment of prepayments where customers have been charged for a supply but have failed to collect or use what they have paid for and have not received a refund. These prepayments will be brought into the scope of UK VAT from 1 March 2019 and VAT will be due on the prepayment.


Increase or decrease in consideration after supply (Regulation 38)

Regulation 38 requires businesses to adjust their VAT account where there has been a change in the value of the supply on which VAT is due, and a corresponding change in the amount of VAT charged.


It has been announced that legislation will be introduced to ensure that a credit note is issued to customers who receive a discount to ensure a higher degree of transparency with businesses, ensuring that they do not benefit by reclaiming VAT that should be refunded to either the customer or paid to HMRC.


Alternative method of VAT collection for online sales

Following a recent consultation, the Government is considering introducing a split payment model for collecting VAT on sales made online by overseas sellers. An industry Working Group is to be set up by HMRC to work with relevant stakeholders to consider this further.


The effects

If you require further information or assistance on any of the points raised above, please speak with your usual Constable VAT contact.

CVC VAT Focus 30 November 2017

We also issue specialist Land & Property and VAT & Charities newsletters. If you wish to subscribe to the Land & Property newsletter please email laura.beckett@ukvatadvice.com. If you wish to subscribe to the VAT & Charities newsletter please email sophie.cox@ukvatadvice.com.


Autumn Budget 2017
The Chancellor delivered his budget last week. Please see CVC’s VAT Focus – Autumn Budget 2017 for the VAT highlights.

HMRC’s Help and Support for VAT
The latest webinars about what to do after you’ve registered for VAT and VAT on motoring expenses have been published online.

Policy Paper: VAT threshold maintained for two years
This tax information and impact note confirms the VAT registration and deregistration thresholds announced at Autumn Budget 2017.

Extending joint and several liability for online marketplaces and displaying VAT numbers online
This tax information and impact note deals with the extension of joint and several liability for online marketplaces announced at Autumn Budget 2017. This guidance note has also been published which explains the measure.

Policy Paper: Refunds to combined authorities, fire and rescue authorities
This tax information and impact note deals with refunds to combined authorities announced at Autumn Budget 2017.

Government Information and National Health Trusts (GIANT) online service
Government department, NHS trust or Royal Household can now use the online service to file forms VAT21 and VAT 100.


Court of Justice of European Union (CJEU)

1. Bad debt relief

The recent CJEU case of Mr Di Maura considered whether the Italian authorities were acting lawfully in  only allowing a taxpayer to reclaim VAT under Bad Debt rules where its customer was declared insolvent and it was established beyond doubt that a debt would not be paid. The Italian situation differs from the UK position, where it is possible to reclaim VAT paid on unpaid supplies after 6 months, subject to certain conditions.

The CJEU held that current Italian rules breached the fundamental principles of neutrality and proportionality in leading to a position where a taxpayer has paid the authorities VAT that it has not received and is not allowed to correct the position for an unreasonable period of time (insolvency proceedings in Italy can take up to ten years).

CVC comment: the current conditions attached to bad debt relief claims in Italy put businesses in Italy at a cash flow disadvantage compared to businesses trading elsewhere in the EU. This ruling may also impact other Member States that apply similar rules to Italy. The UK’s implementation of the bad debt relief rules appear to be compliant in light of this decision.

2. Content of VAT invoices

The CJEU recently ruled, in the joined cases Finanzamt News (C-374/16) and Igor Butin (C-375/16), that the supplier’s address shown on a VAT invoice does not need to be the address where it carries out its economic activity. In the cases at issue the suppliers had used their postal address on its invoices. The CJEU considered that the purpose of including the supplier’s name, address and VAT registration number is to allow the tax authorities to check whether VAT has been declared and paid. It is implied in the decision that these checks can be done regardless of which of the supplier’s addresses is included on the VAT invoice. 

CVC comment: we have not experienced a case where HMRC has refused an input tax claim because the supplier’s address was not the place where their economic activity was carried out; however, if you have had an input tax claim refused on this basis you may wish to re-visit this.

3. Sale of holiday homes

Three partners; Cussens, Jennings and Kingston, have lost a long running challenge by the Irish Revenue that they set up a scheme to avoid paying VAT on the sale of holiday homes.

The partners jointly owned a development site on which they constructed 15 holiday homes for sale. Before making the sales, they entered into lease and lease back agreements with an associated company, Shamrock Estates Limited. The leases were extinguished by mutual surrender and the partners acquired full ownership of the properties. The properties were then sold to third parties. VAT was not charged on the sale to third parties on the basis that properties had been subject to a first supply (to Shamrock Estates) on which VAT was chargeable when the long lease was granted.

The Irish Revenue contended that the lease and lease back arrangements constituted a first supply artificially created in order to avoid VAT on the subsequent sales to third parties and should be disregarded. The case was appealed to the Supreme Court which decided to stay the proceedings and refer a number of questions to the CJEU. The CJEU considered the judgment in Halifax and held that the principles of abuse of rights must be interpreted as applying to this case. 

CVC comment: although this is not a UK case it acts as a reminder that if HMRC sees arrangements as contrived and for the primary purpose of reducing VAT costs then they might try to reinstate the position that should have applied, the so called “Halifax” or “abuse of rights” anti-avoidance principle.

First Tier Tribunal

4. Default surcharge appeal allowed

Stylographics Limited (SL) appealed against a default surcharge on the basis it had a reasonable excuse for making a late payment in respect of its VAT return for the quarter ended 31 December 2016. The amount payable to HMRC was much larger than SL was used to. The payment was processed by SL on the due date at 4pm; however, the bank did not process the payment because there was a transaction limit on the account of £250,000 which could not be uplifted in time. The bank recommended that SL split the payment over two amounts, which SL did; however, this was done at 5.55pm on the due date for payment and the bank’s cut off time for processing same day payments is 5.45pm.

The Tribunal found that there was a series of unforeseen unfortunate events outside of the taxpayer’s control which prevented payment from reaching HMRC by the due date. The appeal was allowed and the default surcharge discharged.

CVC comment: it is unusual for default surcharge appeals to be allowed. This case demonstrates an example of a ‘reasonable excuse’. 

5. eBay trader – penalty for failure to notify liability to be VAT registered

Ms Parminder Kaur sold goods on eBay in the period June 2010 to July 2011. In February 2015 HMRC commenced an investigation into Ms Kaur’s tax affairs. Ms Kaur stated in a letter to HMRC dated 3 October 2015 “…I had made no profit no money from the venture. I did not know or was aware that I had to keep any paperwork or accounts, as I did not, so I do not know what my liability will be as I made nothing from it.”

HMRC analysed a sample of 3,983 feedback postings on Ms Kaur’s eBay account to estimate the turnover of the business. Ms Kaur objected to the sampling methodology so HMRC calculated the sales on all 20,574 feedback postings. The turnover in the period was approximately £278,000 with sales in Sterling, Euros, US Dollars and Australian Dollars. HMRC concluded that Ms Kaur was liable to be registered for VAT from 1 December 2010 and ceased trading on 17 July 2011. The VAT liability was assessed at £27,632.98 and a failure to notify penalty of £14,507.31 was applied. Following formal review HMRC reduced the penalty to £6,908.24.

The Tribunal found that the VAT liability calculation by HMRC was performed to HMRC’s best judgement and agreed with HMRC’s penalty calculation. The taxpayer’s appeal was dismissed.

CVC comment: the penalty regime is based on the taxpayer’s behaviour. Penalties may be mitigated if the taxpayer tells HMRC about the error, gives HMRC reasonable help to resolve the matter and allow HMRC access to records where necessary. We would always encourage pro-active behaviour. HMRC is paying particular attention at the moment to transactions taking place on online marketplaces such as eBay and Amazon. 

6. Zero-rating and input tax denied

C F Booth (CFB) is in the business of metal recycling and metal ingot manufacturing in Rotherham. HMRC denied a claim (in the sum of £160,281.50) by CFB to zero-rate eight supplies of metal to a Belgium registered trader on the basis of CFB’s failure to produce satisfactory export evidence. HMRC also denied input tax in the sum of £2,607,776 on the basis that 655 purchases of various metals were connected to the fraudulent evasion of VAT and that CFB knew or should have known the connections. CFB appealed both decisions and these were heard together before the Tribunal.

A vast amount of information was put before the Tribunal. Documentary evidence was contained in 23 lever arch files and evidence was heard from 19 witnesses. The Tribunal dismissed the appeal holding that CFB cannot have either acted in good faith or taken every reasonable measure not to become a participant in any fraud. Therefore, even if export evidence had been satisfactory, HMRC would have been entitled to deny zero-rating. Additionally, given its standing and history in the sector, its experience and financial strength (taking account of CFB’s £21 million overdraft facility) CFB must have known of the connection  to fraudulent evasion of VAT.

CVC comment: This case highlights that it is not enough for businesses to obtain satisfactory evidence to support a particular VAT treatment. Businesses must take reasonable steps to ensure that it does not become a participant in VAT fraud.










CVC VAT Focus – Autumn Budget 2017

Phillip Hammond has today delivered his Autumn Budget. Here we look at the key VAT measures which have been announced.

VAT registration threshold

The VAT registration threshold will be maintained at £85,000 for two years from April 2018. There had been speculation that the Government may seek to lower the threshold in line with other European countries following the recent report by the Office of Tax Simplification (OTS). In response to the report the Government will consult on whether changes could be made to better incentivise business growth.

Fraud in the provision of labour in the construction sector

We reported in our Spring Budget VAT Focus that the government would consult on a range of policy options to combat supply chain fraud within the construction sector. Following the consultation, the government will introduce a VAT domestic reverse. This will shift responsibility for paying VAT along the supply chain to remove the opportunity for it to be stolen. Changes will have effect from 1 October 2019.

Online VAT fraud

The government has announced a number of measures to tackle online VAT fraud by strengthening and extending existing powers that make online marketplaces responsible for the unpaid VAT of their sellers. These measures will come into force as part of Finance Bill 2017/18 and will include:

  • Legislation to extend HMRC’s powers to hold online marketplaces jointly and severally liable for the unpaid VAT of overseas traders on their platforms to include all traders (including UK traders), as well as any VAT that a non-UK business selling goods on these platforms 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 the business should be registered for VAT in the UK.
  • Legislation to require online marketplaces to ensure that VAT numbers displayed for businesses operating on their website are valid.

We reported in our Spring Budget VAT Focus that the government would launch a call for evidence on and consider a new VAT collection mechanism that will 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. Following the call for evidence, the government will publish a response in December.

VAT refunds

The government will amend legislation in Finance Bill 2017/18 to ensure UK Combined Authorities and certain fire services in England and Wales will be eligible for VAT refunds. Grant funding will also be provided under the Accident Rescue Charities Grant Scheme to help accident rescue charities meet the cost of VAT which would be irrecoverable.

Northern Ireland

The government will publish a call for evidence in early 2018 to consider the impact of VAT on tourism in Northern Ireland. This will be reported in the 2018 Budget.


The government will consult on plans to legislate in Finance Bill 2018/19 to ensure that when customers pay with vouchers, businesses account for the same amount of VAT as when other means of payment are used. This will align the UK with similar changes being made across the EU.

Should you wish to discuss any of the VAT announcements made in the Autumn Budget 2017 please contact us.