Summary: Philip Hammond’s Autumn 2018 Budget was light on changes to the VAT system, with the Chancellor choosing small amendments over wholesale changes. Partner and Head of VAT Alan Sinyor has outlined the key changes below.

VAT Grouping

  • As expected, the Government has announced plans to allow, in the Finance Bill 2018-19, certain non-corporate entities, such as partnerships, to join a VAT group.
  • The Government also intends to amend the definition of “bought in services” in the context of the grouping anti-avoidance rules.
  • HMRC will provide clarity on “protection of revenue” powers and the treatment of UK fixed establishments. The guidance changes will be published in draft and come into effect from 1 April 2019.

    “Specified Supplies” Anti-Avoidance Rule: Amendment

  • The current rules allow taxpayers who make “specified supplies” (ie supplies of financial or insurance services to people outside the EU) to reclaim VAT on their inbound supplies.
  • The Government perceives that this rule is being abused, especially in the insurance sector. It therefore intends to prevent such recovery in certain circumstances, known as  “looping”. This is where insurance intermediary supplies are made to a person outside the EU, but where the final consumer is in the UK. Currently, the provider of the insurance intermediary supplies may recover VAT incurred on its supplies. 
  • The Government has narrowed the scope of the proposed anti-avoidance measure. It will now apply only to insurance intermediary supplies and not financial supplies. VAT recovery will be restricted only if the principal supply is made to consumers in the UK (but not in the EU).

Split Payment VAT Collection

  • HMRC is continuing to investigate new VAT collection models to reduce online fraud by third country sellers and improve collection in e-commerce.
  • HMRC will establish an industry working group to examine the policy and address the main challenges posed.

VAT Thresholds

  • The VAT registration and deregistration thresholds (£85,000 and £83,000 respectively) will be maintained for another 2 years from 1 April 2020 ie until 31 March 2022.