In little under a year all businesses that file VAT returns will have no choice but to file those returns online and through dedicated accountancy software. The move is part of the Government’s Making Tax Digital programme, and businesses are far from ready.
The first phase of Making Tax Digital for Businesses (MTD) will come into effect in less than 12 months time. While the quarterly reporting for income tax purposes has been pushed back until at least 2020, the digital reporting for VAT purposes is on schedule and will impact all VAT registered businesses with turnover above the VAT threshold from 1 April 2019.
The default VAT position for selling or letting land and property is that it is exempt from VAT. Whilst this means no VAT is chargeable, it also means that no VAT can be reclaimed from HMRC on related expenditure. Exemption can also have a negative impact on a business’s overhead VAT recovery. This issue can, however, be solved where land and commercial properties are concerned and which is why an owner ‘Opts to Tax’. This turns a VAT exempt supply into a taxable one, at 20% VAT, allowing VAT incurred on construction, refurbishment, maintenance and sale costs to be recovered from HMRC.
The Government has today announced a consultation looking at alternative methods of VAT collection – what it calls ‘split payment’ where VAT is collected by the payment card issuing company or payment company. It is part of the Government’s efforts to more effectively collect VAT due on sales in the UK from global technology companies.
Although the UK Government has already set out potential scenarios which might reduce ‘friction’ in regards to customs procedures at Brexit, changes will of course only be confirmed following the conclusion of negotiations. We recommend that you do not wait for the final outcome of these discussions and instead make contingency plans now to mitigate the potential issues which could affect your business supply chain.
The UK has previously set out a number of scenarios which might possibly reduce friction in terms of the customs procedures at Brexit, but any changes to the current customs, VAT and excise systems will only be known following the conclusion of on-going negotiations which, as has been widely reported, are not at an advanced stage.
Relief for small businesses – the VAT registration threshold is frozen for two years
Clearly, the government has been taking in the Office of Tax Simplification’s report and the issues it raises regarding the current VAT registration threshold of £85,000. The threshold causes a bunching of businesses just below the threshold. This artificially stifles the potential growth of businesses and the economy. Although the Chancellor announced this issue will be subject to consultation, his freezing of the threshold for two years indicates an acceptance that continuing the practice of inflationary rises is inadequate and that there is no quick solution here. Any substantial change up or down will have a significant impact on small - especially labour intensive - businesses and their private or exempt business customers, such as care homes, charities and housing associations that use small, unregistered, suppliers at present. The action the Chancellor has taken is as expected but a sigh of relief, for now, for those who were worrying about a significant reduction in the threshold.
A recent decision of the Court of Justice of the European Union (CJEU), the highest court governing VAT - at least until Brexit - has called into question the recovery of VAT incurred by developers on expenditure relating to planning gain agreements.