Budget 2017: Businesses spared from VAT threshold cut

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Many AccountingWEB members will breathe a sigh of relief as the Chancellor spurned the OTS’s suggestion to radically lower the UK’s VAT threshold in his Budget speech today.

Hammond took it a step further: freezing the £85,000 threshold for at least two years. The freeze most likely does amount to a small cut, however, as the inflation (currently at 3%) will eat into it. But it’s far from the drastic cut which sparked a furore among business lobbies and AccountingWEB members.

Speaking directly after the speech, the FSB’s chairman Mike Cherry noted a “sense of relief” at the Chancellor not undertaking “a VAT tax grab that would have caused huge economic damage”. Instead, Cheery said, “The FSB is ready to work with the Treasury to simplify an overly complicated tax that on average takes a business a whole week to administer every year.”

Hammond did note, however, the infamous “cliff edge” phenomenon of businesses clustering just beneath the VAT threshold. The Chancellor lamented how the threshold “disincentives business growth” and distorts competition, but stopped well short of suggesting radical reforms in the short term.

“I am not minded to reduce the threshold but I will consult on it to see if it could be designed for better incentives,” he said. The registration and de-registration thresholds will remain in stasis while this consulting on whether a reduction would be feasible.

The freeze will spare many businesses from MTD. As AccountingWEB members will be aware, from 1 April 2019 all businesses with turnover above the VAT threshold will have to keep digital records.

“Freezing the VAT threshold beyond this point means that businesses now know for certain the level at which businesses will first become subject to MTD obligations,” said Yvette Nunn, co-chair of ATT’s Technical Steering Group.

Online VAT fraud

VAT popped up elsewhere in the Chancellor’s speech, too. Hammond announced that new legislation in the Finance Bill 2017/18 would extend the scope of existing joint and several liability rules for online marketplaces.

Online marketplaces would now be jointly and severally liable for:

  • Any future VAT that a UK business selling goods via the online marketplace fails to account for once they have been notified by HMRC.

  • Any VAT that an overseas business selling goods via the online marketplace fails to account for where that online marketplace knew or should have known that that business should be registered for VAT in the UK.

The new legislation will also require that online marketplaces ensure VAT numbers displayed for third party sellers on their websites are valid. They will also be required to display a valid VAT number when they are provided with one by a third party seller operating on their platform.

This new legislation will affect UK and overseas businesses selling goods in the UK to UK consumers via online marketplaces and the online marketplaces themselves.

VAT and vouchers

Another tidbit announced was that the government will implement certain changes in the VAT treatment of vouchers with effect from 1 January 2019.

These will simplify the VAT treatment of vouchers, including the point at which they will become subject to VAT, and in some cases their value for taxation.

A consultation paper will be published on 1 December 2017.

About Francois Badenhorst

Francois

I'm AccountingWEB's business editor. Feel free to get in touch with comments, tips, scoops or irreverent banter. 

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23rd Nov 2017 11:42

Not for 2 years. mmmmmmmm doesn't that coinside with brexit and start of MTD. So I think we can safely say that in 2 years the VAT threshold will be brought down or done away with altogether.

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to johnjenkins
23rd Nov 2017 12:42

Absolutely - I agree entirely, I am sure we will see a substantial drop in the VAT Registration threshold once we Brexit and HMT will want all businesses with turnovers in excess of £30k per annum filing through MTD.

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23rd Nov 2017 12:49

I have a feeling that the VAT rate will drop further than the £30k but will be set at the same rate as for MTD. This may mean that MTD starting point rises to £30k.

It seems pointless to have two figures when all the work for mtd would be much the same as for VAT. I hope that there will be simplification in the various VAT schemes so that the MTD software can make correct calculations.

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23rd Nov 2017 15:26

There is a need to totally drop the VAT level, causes unfair trading especially in the domestic market, all businesses perhaps should be registered for vat, dare i say it - all self employed should be too.................. Many who say they are , are not which is unfair to those who are risking capital and time to run a business.

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to sbgriseum
23rd Nov 2017 15:46

I'm pretty sure when we talk about business we mean all business including the SE

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