Budget 2013: VAT announcements
The good news is that there was very little in this year’s Budget to worry VAT practitioners or VAT-registered businesses.
There was, of course, the usual annual uprating of thresholds from 1 April 2013:
- The registration threshold goes up from £77,000 to £79,000
- The de-registration threshold goes up from £75,000 to £77,000
The new VAT threshold also sets the limit for three-line accounting for the self-employed on self assessment tax returns and for the new simplified bash basis accounting, which is available from 2013-14.
A new table of VAT fuel scale charges has been published and will apply to VAT accounting periods beginning on or after 1 May 2013. Charges have been increased by roughly 1.2%.
More details are available from HMRC's Budget 2013 indirect taxes and VAT page.
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As is often the case, the more substantial VAT proposals are buried in the Budget small print and involve either further consultation or a vague promise of legislation in a future Budget.
1. EU place of supply
The Finance Bill 2014 will contain legislation to change the place of supply rules from 1 January 2015 for intra-EU business-to-consumer supplies of telecommunications, broadcasting and electronic services. These are currently taxed in the member state in which the supplier is based, but under the new rules will instead be taxed where the consumer is located.
Sounds like a nightmare for UK businesses caught by these rules - doesn’t this mean having to register in some or all other EU countries? Thankfully, the Government has plans to reduce the resulting burden on businesses by setting up an online “Mini One Stop Shop” (MOSS) from 1 January 2015 where they can register just in the UK and account for all the VAT due in other member states using a single return. How this will actually work in practice will be revealed in due course. It is proposed that businesses will be able to register for MOSS from October 2014.
2. Review of the Retail Export Scheme (tax free shopping)
The Government will consult later in 2013 on options for redesigning the Retail Export Scheme, which allows refunds of VAT on goods bought in the UK by non-EU visitors who export those goods in their personal luggage. The intention appears to be to make it easier to use and understand, reduce the scope for error and improve compliance. One possibility is the introduction of a digital scheme.
3. Changes to zero-rating of exports from the UK
Some tidying up is planned to bring UK VAT law into line with EU law. The change will treat sales to businesses who are VAT registered in the UK, but have no business establishment here, as zero-rated where they arrange for the export of the goods to a non-EU destination. Current UK law charges VAT on such transactions, contrary to EU law. Following a (short!) consultation, secondary legislation will be introduced in late summer or early autumn 2013.
4. VAT treatment of refunds made by manufacturers
Manufacturers have lobbied the Government to enable them to claim full VAT relief when they make refunds to final customers, for example as a result of faulty or damaged products or customer dissatisfaction. The Government will consult with industry to understand the problems with a view to including legislation in Finance Bill 2014 to correct this situation.
5. VAT refunds for the Health Research Authority and Health Education England
Following changes proposed in the Care and Support Bill, the Finance Bill 2014 will include the Health Research Authority and Health Education England within section 41 of the VAT Act 1994 to ensure that these bodies can continue to claim refunds of VAT.
6. Extension of the education exemption to for-profit providers of higher education
In the 2012 Budget, the Chancellor announced a review of the treatment of university degree level education with a view to extending the existing VAT exemption to commercial entities supplying such education. Apparently the consultation identified a number of significant issues and concerns with the options proposed, so the Government is going to look at alternative options which will also cover possible changes to the exemption for further education (a point that a large number of respondents made).
As a result, more time will now be spent exploring the issues raised and there will be further consultation with interested parties again later this year before introducing changes in “a future finance bill”, so the timescale for any change remains unknown at the moment.
7. Withdrawal of VAT exemption for research
- or to be precise, the withdrawal of the VAT exemption for business supplies of research between eligible bodies. Those with good memories or an interest in this topic will recall this was announced in last year’s Autumn Statement and the consultation document published on 20 December with a closing date for comments of 14 March 2013. No further mention of this has been made, and the Government has yet to publish the results of the consultation so at the moment we can only assume the legislation will be amended from 1 August 2013 as proposed.
On the face of it, any move to reduce the tax incentives for R&D would appear to run counter to general Government policy. However, a closer reading of the consultation document reveals that this is likely to be of very limited impact since most research is either already fully VATable or simply outside the scope of VAT altogether (because it is grant funded). Indeed, the facility for the recipient of such services to recover Input Tax may even reduce the effective cost, despite the loss of exemption.
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