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VAT - construction industry reverse charge reminder

Abolition of the ‘tampon tax'

The first headline for VAT in the Chancellor's speech came when Sunak announced that the UK leaving the EU presents an opportunity to introduce legislation applying the zero-rate of VAT to women's sanitary products.

VAT is currently charged at 5% on these products. This is to be scrapped from 1 January 2021.

This has been a controversial area of VAT for a number of years, with the media labelling it the ‘tampon tax'. A growing number of protesters had called for its abolition.

VAT and digital publications

Zero-rate VAT will also apply to digital publications of books, newspapers, magazines or academic journals from 1 December 2020.

Unlike the tampon tax, this is not a Brexit-related change. The EU rules in respect of electronic publications were actually relaxed in October 2018 allowing such publications to be treated the same as hard-copy titles.

However, the intended change to the UK rules follows the recent relatively high-profile News Corp case, which saw the electronic versions of The Sun and The Times newspapers found to be zero-rated.

It also overturns HMRC's recent Revenue and Customs Brief 1 (2020), which suggested it was of the opinion that other digital publications would remain standard-rated following the case.

The new rules should see eBooks, eNewspapers and academic journals having the same VAT treatment as physical copies of the same titles.

Reverse charge VAT in the construction industry

Firms in the construction industry are reminded about the domestic reverse charge, which was initially announced in Budget 2018 and seeks to reduce fraud.

It will be similar to the construction industry scheme and will see contractors accounting for VAT on supplies by their subcontractors when those supplies will be recharged on by the contractor.

The scheme could require firms in this sector to update their accounting systems and could result in an impact to some businesses' cashflow position.

It was scheduled to be introduced in October 2019, but was postponed at the last minute. It will be introduced on 1 October 2020 and may be very important to a number of businesses in this sector.

Agricultural flat-rate scheme

Following a consultation, the Government will introduce new entry and exit rules for the agricultural flat-rate scheme (AFRS) next year.

These changes will kick in from 1 January 2021:

Businesses can join the AFRS when their annual turnover for farming-related activities is £150,000 or less.

Businesses must notify HMRC once their annual turnover for farming-related activities exceeds £230,000 to be deregistered for the scheme and registered for VAT instead.

Non-farming businesses with turnover exceeding £85,000 will still be required to register for VAT and will be ineligible to use the AFRS.

VAT on goods entering the UK

Spring Budget 2020 makes a number of references to bringing goods into the UK.

Firstly, the UK will implement legislation to bring the EU ‘quick-fix' legislation into UK law. This will apply during the transition period and for UK purposes, it will mainly relate to ‘call-off stock'.

Many of the other EU quick fixes, such as the need to put EU VAT numbers on invoices, already apply.

The rules that apply to ‘call-off stock' can be complex but can allow businesses storing goods in other EU member states to avoid the need to register for VAT there. If a business is likely to store goods overseas during the transition period, it will probably require further advice.

The documentation also mentions the concept of postponed accounting, which will come into play after the end of the transitional period.

From 1 January 2021, postponed accounting will apply to all goods coming into the UK, including EU goods. The VAT will be accounted for on a business's VAT return in a similar way to the acquisition tax, which currently applies to EU acquisitions of goods.

Last but not least, there will be two consultations in respect of the VAT treatment of goods.

One will relate to goods supplied to the UK by overseas sellers.

This will be open to interested stakeholders and will consider low-value imports and goods which are located in the UK.

The other will look at tax and duty-free goods.

Partial exemption and capital goods scheme

The Government has been calling for evidence from stakeholders on the application of partial exemption and the capital goods scheme.

Many taxpayers and advisers believe the rules surrounding VAT recovery where a business has both taxable and VAT-exempt activities are complex.

The Government has promised to engage with stakeholders and will publish a response following the call for evidence in due course.

VAT and financial

An industry working group is to be formed to consider the future application of VAT to financial services.

In the meantime, the Government will be legislating in order to widen the scope of the VAT exemption for the management of special investment funds.

VAT

 From 1 April  2020  2019 
 Standard rate 20% 20% 
 VAT fraction 1/6 1/6
 Reduced rate, eg on domestic fuel 5%  5% 
 VAT fraction  1/21  1/21

Taxable turnover limits

 From 1 April  2020  2019 
Registration over* £85,000  £85,000 
Deregistration under** £83,000  £83,000

* Last 12 months or next 30 days

** Next 12 months