This is the first Autumn Budget which has taken over from the now defunct Autumn Statement. The Chancellor, Philip Hammond MP, froze the threshold for VAT, introduced reverse charging for construction industry VAT reporting and also introducing new online VAT fraud processes to clamp down on illicit online trading.
VAT had made the headlines even before Philip Hammond stood up to present his Budget to the House of Commons. Some commentators believed the Treasury were about to cut the threshold for VAT registration – from the current £85,000 to a more modest £26,000 and thus catching a whole tidal wave of small businesses into the HMRC net. However, ‘Spreadsheet’ Phil, didn’t quite go down the route of reform, just tweak after tweak in regard to key policy announcements.
VAT Registration Threshold Changes
The aptly named Office for Tax Simplification issued a new report on possible avenues for simplifying the VAT process. The biggest takeaway from this, a reduction from £85,000 to £26,000 which would bring one million businesses into the tentacles of VAT payments – helping the exchequer profit accordingly. However, after howls of anguish from the Conservative backbenches, Philip Hammond decided on a more conservative change to the VAT registration threshold processes.
The minor amendment was to freeze the annual inflationary increase to the threshold. This will help the Treasury get more businesses paying VAT – as the failure to upscale due to inflationary pressure will result in more businesses going over the £85,000 threshold and thus will become liable for VAT payments. However, with current inflation at around 3 per cent, the expected increase to £87,000 in April 2018 failed to materialise and this freeze is a response to the failed attempt to win support for a massive wholesale reduction in the threshold limit.
The Government has also pledged to begin a process of consultation based on “the design of the registration threshold.” The purpose of this experience is to help understand the dynamics around the threshold, the trading experiences – and the environment therein – and how businesses interact with VAT. The findings will be published in late 2018 – with some pundits expecting changes, based on the evidence of the consultation, in the next budget.
Reverse VAT Charge Changes for the Construction Industry
This measure now irrevocably shifts responsibility for the payment of VAT in a more structured way throughout the construction supply chain in order to remove the possibility of payment failure by rogue participants throughout the project lifecycle. The Government has announced a ‘technical consultation’ in Sprint 2018. The final draft, along with legislation and guidance, will be published by October 2018.
This was all based on an earlier consultation – with a call for evidence set out in March and April 2017 – which explored the criminal dynamics of organised crime gangs utilising businesses to fraudulently charge VAT and make bogus income tax deductions therein. The main function of the changes is to prevent the acquisition of an existing company – with an official gross payment status (GPS) in order to artificially lengthen the supply chain and make the reconciliation process more complex by distributing income to other ‘puppet’ companies.
HMRC believes reverse charging the final client – for example a residential development; as each participant throughout the supply chain would be VAT registered, thus creating multiple VAT payments, which could involve diverse rates, by creating a single end-user charge back, HMRC believes this would drastically cut the prevalent fraud of under/non-payment of VAT within the construction industry by criminal organisations.
Stopping Online VAT Fraud
The Chancellor outlined a new determination to weed out online VAT fraud by sellers that trade through a defined online marketplace – from eBay to Freelancer.com and beyond. The move is designed to help UK traders who have been at a disadvantage when trading online against non-compliant VAT retailers online – rebalancing this competitive VAT unfairness could help strengthen the UK’s online digital retail success story.
New online VAT anti-avoidance measures ill be introduced by late 2018 and will apply to all online sales – regardless of locale. This is about balancing the unfairness of trading through digital platforms. The new HMRC rules will make marketplaces both jointly and severally liable for any future unpaid VAT of a UK business entity selling an item in the UK through a defined online marketplace. This could have serious consequences for the raft of ‘gig’ economy marketplaces – from Etsy, eBay to People Per Hour and how the self-employed trade online.
The rules also impact on non-UK businesses trading in the UK. The new regulations, which will gain Royal Assent later in 2018, will mean companies cannot simply setup a UK shell company to avoid payment. They will have to register as non-UK businesses on the UK VAT registry. The move will also force online platforms and sellers to display VAT numbers with consequences for incorrect or fake details – this is to prevent non-compliance. HMRC believes the move will bring in an additional £10 million of tax in 2019/20 which would rise to beyond £45 million post 2020/21, once the system has become more structured.
The VAT changes have impacted on a whole raft of different business experiences. However, if you’re self-employed, a contractor, freelancer or consultant – this budget was good news. Philip Hammond seems to have navigated away from the demands outlined by the Office for Tax Simplification – and bowed to the Tory backbenches in the process. Tax is already a nightmare for many small businesses. What you need is professional financial advice to help you understand how these changes could impact you tax affairs.
Why not contact a bespoke financial and accountancy solutions specialist, like Prestige Business Management, who can help you understand how the 2017 Autumn Budget will impact your business or personal tax experience? Our team can help you understand how the changes to VAT threshold, construction tax charge backs along with online VAT rules will impact your business experience. Why not call our team today on 020 3773 2927 or email [email protected] for more information?