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Value Added Tax

Registration threshold

The level of taxable turnover that requires a business to register for VAT was set at £85,000 with effect from 1 April 2017. The Office of Tax Simplification has suggested that this creates a number of problems, in particular discouraging small businesses from growing above that level. It is much higher than the registration level for sales taxes in most other countries.

This had led to speculation that the Chancellor might reduce the limit, which could have raised a significant amount of tax, but would have involved many small businesses in extra administration and cost. He decided not to cut the threshold, instead freezing it at its current level for the next two years. The deregistration limit (£83,000) will also stay unchanged.

Online marketplaces

There is evidence that many sales through online marketplaces involve the supply of goods in the UK on which the appropriate VAT is not paid. The Government is taking a number of steps to close down this evasion and prevent unfair competition with those businesses that account for the proper VAT:

  • HMRC may hold online marketplaces jointly and severally liable for future unpaid VAT of a UK business on sales of goods in the UK by that business through that marketplace.
  • HMRC may also hold a marketplace jointly and severally liable for unpaid VAT of a non-UK business where the marketplace knew or should have known that the business should be registered in the UK.
  • HMRC will require online marketplaces to display valid VAT numbers for all their sellers on their website where a number is provided, and to carry out checks to ensure that numbers provided are valid.

These measures will take effect from the date of Royal Assent to the Finance Bill 2017-18.

Construction industry fraud

HMRC is concerned that there is an increasing amount of fraud carried out by suppliers of labour in the construction industry. They raise invoices charging VAT which their builder customers claim as input tax, but disappear without ever paying the output tax to HMRC. To counter this, the Government intends to bring in a 'reverse charge mechanism' for some supplies of labour in the industry. It will only take effect in October 2019 after consultation, to allow time for those affected to develop systems to operate the new rules. These would be similar to those already introduced to prevent similar frauds in relation to transactions in mobile phones, computer chips, emissions trading allowances and some other types of supply that have proved susceptible to fraud in the past.