A summary of the key announcements affecting value added tax and other indirect taxes is set out below. Many of these changes were previously announced.
Value Added Tax
VAT on financial services – The Government has announced that it will set up an industry working group to review how financial services are treated for VAT purposes. This measure is part of the Government’s wish to make the most of the opportunity of leaving the EU to make the UK’s VAT system more business-friendly, while continuing to recognise the significant contribution of VAT to the public finances. The EU has previously attempted to modernise the financial services exemption but has failed due to the complexity of viewpoints across the EU. With the UK expecting to be free to make changes which are not consistent with the EU Principal VAT Directive, the UK will have more flexibility after 1 January 2021.
VAT on fund management – As announced on 4 March 2020, the Government is considering changes to the VAT treatment of fund management services. Other jurisdictions, notably Luxembourg, have a wide VAT exemption for fund management services which has sometimes contributed to the choice of Luxembourg for fund location, and the Government will no doubt consider whether the UK too can widen its exemption to add to the attractiveness of the UK. This is part of a wider review of the UK’s fund regime, in particular to encourage the use of UK intermediate companies, for alternative funds, to take place during 2020 which will cover direct and indirect tax, as well as relevant areas of regulation, with a view to considering the case for policy changes. The review begins with a consultation, published 11 March 2020, on whether there are targeted and merited tax changes that could help to make the UK a more attractive location for companies used by funds to hold assets.
HMRC priority in insolvency reintroduced – From 1 December 2020 certain amounts in respect of tax will acquire preferential status (i.e. will rank after fixed charges and expenses of insolvency, but before holders of floating charges and unsecured creditors). The taxes that will acquire this status are VAT, PAYE income tax, employee national insurance contributions, student loan deductions and construction industry scheme deductions. The change will not affect corporation tax and employer national insurance contributions.
“Large Business Notifications” – New Disclosure Requirement – From April 2021, large businesses will be required to notify HMRC when they take a position which HMRC is likely to challenge. The Government notes this will draw on international accounting standards. This is presumably a reference to IFRIC Interpretation, which requires estimates and judgements to be made about whether a tax authority will accept the position taken in its tax filings. The Government will consult on the detail in due course. It may cover VAT.
VAT postponed accounting – From 1 January 2021, postponed accounting for VAT will apply to all imports of goods, including from the EU 27. Postponed VAT accounting will delay the time when import VAT is due to HMRC from the time of import to when the VAT return is due, providing an important cash flow advantage to businesses in the UK which are integrated in international supply chains. This was a change announced by the Government previously, in the context of a “no deal” Brexit, so that UK businesses importing goods from EU 27 Member States after Brexit were not disadvantaged by the rules changing from “acquisitions” to “imports”. Consistently with the previous announcement, this change will apply to imports from all non-UK jurisdictions, not just from the EU 27.
VAT reverse charge for building and construction services – As announced in September 2019, to prevent missing-trader fraud, the implementation of the VAT domestic reverse charge for building and construction services, will take effect from 1 October 2020. This shifts the responsibility for accounting for VAT on construction services from the supplier to the customer in certain cases so that the customer is to account for VAT directly to HMRC. Contracts will need to reflect this change.
VAT call off stock rules – As announced on 31 December 2019, the Government will introduce legislation required by Council Directive 2018/1910 relating to the VAT treatment of supplies of call-off stock across EU borders. This change will introduce simplified rules for the VAT treatment of movements of call-off stock between the UK and EU Member States, allowing businesses to delay accounting for VAT until the goods are called-off. The legislation will apply to goods which are removed from a Member State or the UK on or after 1 January 2020.
VAT on e-publications – The Government will introduce legislation to apply a zero rate of VAT to e-publications from 1 December 2020, which will make it clear that e-books, e-newspapers, e-magazines and academic e-journals are entitled to the same VAT treatment as their physical counterparts. The Government expects the publishing industry, including e-booksellers, to pass on the benefit of this relief to consumers.
Long term passengers’ policy consultation – The Government is publishing a consultation alongside Budget to gather views on the potential approach to duty - and tax-free goods policy after the transition period following the UK’s departure from the EU.
Long term cross border goods policy – The Government will launch an informal consultation over Spring 2020 in relation to the VAT and excise treatment of goods crossing UK borders after the Brexit transition period.
VAT Agricultural Flat Rate Scheme (AFRS) – Following informal consultation with stakeholders in 2019, the Government will introduce new entry and exit rules for the AFRS.
Abolition of tampon tax – From 1 January 2021, the Government announced it will use freedom from EU law to enable a zero-rate of VAT to be charged on women’s sanitary products.
VAT Partial Exemption – Following the recent call for evidence on the simplification of the VAT rules on Partial Exemption and the Capital Goods Scheme, the Government will continue to engage with stakeholders in relation to their responses and will publish a response in due course.
Insurance Premium Tax (IPT) call for evidence – The Government will shortly publish a summary of responses to the recent call for evidence on the operation of IPT, along with information on a forthcoming consultation setting out the next stage in reforming how IPT operates.
Gaming duty bandings – The Government will legislate to raise the gross gaming yield bandings for gaming duty in line with inflation, with revised bandings to be used for accounting periods starting on or after 1 April 2020.
Air Passenger Duty (APD)
Aviation tax reform – In January 2020, the Government announced that it would undertake a review of APD ahead of the Budget. The Government will consider modifying the APD treatment of domestic flights, possibly reintroducing a return leg exemption, and for increasing the number of international distance bands. A consultation on aviation tax reform that will be published in Spring 2020.
APD rates from 1 April 2021 – Short-haul rates will not rise. However, the government will legislate to increase long-haul rates in line with inflation. The APD rates from 1 April 2021 will be as follows (with rates from 1 April 2020 in square brackets):
|Bands (distance in miles from London)||Reduced rate (lowest class of travel)||Standard rate (other than the lowest class of travel)||Higher rate|
|Band A (0 - 2000 miles)||£13 [£13]||£26 [£26]||£78 [£78]|
|Band B (over 2000 miles)||£82 [£80]||£180 [£176]||£541 [£528]|
Plastic Packaging Tax
Plastic Packaging Tax – As announced at Budget 2018 and following consultation in Spring 2019 the Government will introduce a new Plastic Packaging Tax from April 2022 to incentivise the use of recycled plastic in packaging. The Budget sets the rate at £200 per tonne of plastic packaging that contains less than 30% recycled plastic. This will apply to the production and importation of plastic packaging. The Government will keep the level of the rate and threshold under review to ensure that the tax remains effective in increasing the use of recycled plastic. The Government will also extend the scope of the tax to the importation of filled plastic packaging and apply a minimum threshold of 10 tonnes of plastic packaging to ensure the smallest businesses are not disproportionately impacted. The Budget also announces the launch of a further consultation on the detailed design and implementation of the tax, which includes consideration of an exemption for certain types of medical packaging.