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Election result: Status quo for VAT

Neil Warren doesn’t expect to see any major VAT changes in the next few years, despite the Conservative government’s majority following the general election.

18th Dec 2019
Independent VAT Consultant
Columnist
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Tax
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As the Conservative government now has a comfortable majority of 80 seats, it can play some big hands. Given this strengthened position, I was asked whether there would be any major VAT changes taking place over the government’s five-year term. My answer was a decisive ‘no’ for three reasons:

  • Brexit will already keep businesses on their toes with VAT
  • The famous ‘pasty tax’ budget in 2012
  • The reverse charge rules for the construction industry will occupy a lot of HMRC time.

Brexit

The UK’s departure from the EU will present many VAT challenges that will require practical solutions. For example, imports into the UK will become subject to a “postponed accounting” regime – a major change to the current system.

Businesses that hold call-off stock in other EU countries will probably need to obtain VAT numbers in a lot of different EU countries and brush up on some of their language skills to deal with overseas tax authorities. I will be writing about this in another article shortly.

The last thing businesses will need is a feast of other big domestic VAT changes, such as an extension or reduction in the items eligible for the zero-rate or exemption.

Pasty tax budget

Nearly eight years ago, the coalition government made a series of VAT blunders in its famous 2012 ‘pasty tax’ budget. The word ‘omnishambles’ appears in Wikipedia with a reference that “it gained popularity in 2012 after sustained usage in the political sphere”.

This refers to George Osborne’s budget in which he tried to amend the VAT rules on pasties, storage, hairdresser chairs, caravans and listed building repairs, but only managed to cause confusion and chaos, incurring the wrath of caravan owners, charities and bakeries. A series of embarrassing U-turns were needed to resolve the problems.

Lessons learned

A challenge for politicians is to learn from past mistakes.

Former Prime Minister David Cameron mentioned the 2012 Budget in his autobiography For The Record. He was very honest about the way he under-estimated VAT: “frankly, never touch VAT definitions. It’s not worth the trouble. Beware symbolism. 20p on a pasty can cost you more than £1,100 off income tax.”

In a specific comment about pasties, he said “I hadn’t even thought about pasties. Spring rolls, saveloys, chips and chicken wings – we’d discussed the lot as we stress-tested the VAT rise. But no one had mentioned pasties – and, importantly, no one in the Treasury had raised the problem.”

My conclusion? Despite the 80-seat majority, I predict that the government will wisely steer clear of any VAT tinkering – in footballing terms, it is a massive own goal trying to swim in the shark-infested waters of the nation’s favourite tax.

Delayed reverse charge

The other big VAT challenge in 2020 will be the introduction of the reverse charge for the construction industry on 1 October.

This change was delayed by a year because the construction industry wasn’t prepared for the software and accounting challenges it presented. A concerted effort will be needed in 2020 to fully prepare for the changes, and not leave them until the last moment.

My tip is to be six months ahead of the game, so builders should start thinking about the changes in April 2020.

As the late American business guru Stephen R Covey advocated in his famous book The 7 Habits of Highly Effective People, a task should always be dealt with in advance as an ‘important issue’ and not left too late when it becomes ‘urgent’… and a potential crisis.

Replies (6)

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By minkie
18th Dec 2019 10:55

Surprising headline - would have thought their turnover would have dropped below the threshold by now !!!

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By gbms
18th Dec 2019 11:21

Today's Times states that a new clause in the Brexit Withdrawal bill coming to the Commons this Friday will let courts below the Supreme Court overturn ECJ rulings. So British courts will be able to rule on existing EU case law on VAT, among other things.

That being the case (and we will see on Friday), expect to see a lot of changes in VAT after Brexit.

It will bring an increase in case law as taxpayers and maybe even HMRC seek to overturn existing EU judgments.

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By Michael C Feltham
18th Dec 2019 11:44

IF and it's a big if, Britain actually withdraws from EU membership, then there is absolutely no justification in maintaining VAT.

Value Added Tax was another lie from Heath:

"One simple tax; one low rate!" He quoth.

Simple? I wish! Low rate? I wish also. VAT replaced Purchase Tax; which of course ONLY applied to the sale of new high value luxuries; never ever on secondhand goods; and never ever on work!

When artisans provide new goods as part of their work (Plumbers, kitchen fitters etc), then they are soon over the mandatory registration turnover limit: which simply means a majority of their customers must suffer 20% extra on the labour cost.

This iniquitous tax is a tax on work! The self employed already suffer Class IV NIC - for which they receive no benefit.

It must also be stated, a percentage of ALL VAT collected in the UK goes direct to EU coffers. Ergo the minimum Government ought to do is reduced VAT by the value of this levy.

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Replying to Michael C Feltham:
By ireallyshouldknowthisbut
18th Dec 2019 17:09

Eh?
VAT wont go down, the government is going to be desperately short of tax post brexit. The EU does not "take a %", EU funding is based on a complex formula based on the overall size of the UK economy vs the rest of the EU, and has most of that comes back to the UK anyhow there is no "money on the bus" That was a fat lie by leave.
Replacing VAT with a sales tax does not solve the problems with VAT, it just mirrors them into a new system with all the attended transitional issues on the way.

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Replying to Michael C Feltham:
By ireallyshouldknowthisbut
18th Dec 2019 17:10

.

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Replying to ireallyshouldknowthisbut:
Chris M
By mr. mischief
19th Dec 2019 08:11

Clue:

In the election debates the Government made lots of promises on not putting up income tax, NI, inhertiance tax.

Not VAT though. You heard it here first.

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