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KEY POINTS
- Low value consignment relief reduced.
- Supplies from overseas businesses.
- Online filing compulsory for all from April 2012.
VAT had its place at the top table of George Osborne’s first Budget last year with the increase in the standard rate from 17.5% to 20%.
It was therefore hardly surprising that the tax was relegated back to the cheap seats this year, although with a few surprises contained in the measures announced.
Overseas business
Goods can currently be imported into the UK from outside the EU without VAT being payable if they have a value of £18 or less. This figure will reduce to £15 on 1 November 2011, with further reductions possibly on the cards in future years.
The £18 concession, known as low value consignment relief, was originally intended to serve as an administrative measure to reduce the costs to businesses, Royal Mail and HMRC, but has in reality become a very effective way for some big retailers to import VAT-free goods from the Channel Islands.
In effect, the ‘importers’ wishing to avoid VAT after November must now suffer a £3 reduction in their profit margins for the items they were selling at the top price of £18, or instead deflect such sales back to their UK branches and pay 20% VAT, i.e. £15 plus £3 = £18.
The measure is good news for smaller UK retailers who have to compete with these imports.
The Budget confirmed that online registration and deregistration will be compulsory from 1 August 2012, but a separate sentence in the same section of the Budget report (3.69) may have been missed by readers:
‘Other changes will include removal of the VAT registration threshold for businesses not established in the UK.’
What does this mean? Imagine that I have decided to hire a singer for my 40th birthday party next year, and am not sure whether to pay a fee of £10,000 to Susan Boyle (VAT registered in UK) or the famous French-based singer Marie-Chantal Toupin for the same fee.
Assuming that Marie has no UK-based fee income, apart from my party, then she has no obligation to register for UK VAT, i.e. her annual sales are less than the £73,000 threshold.
Even though she will be VAT registered in France, she will not charge me French VAT because the place of supply for entertainment services in a business to non-business deal (B2C) is where the singing takes place, in this instance, the UK.
So under current rules, I will save £2,000 VAT by using Marie rather than Susan.
However, if the registration threshold is reduced to zero for non-UK businesses, then Marie will need to get a UK VAT number before she does my party and charge me UK VAT: thus a level playing field is restored.
The other situation when the new rules could make a difference will relate to building (land-related) services. At the moment, if I use a French-based architect to issue drawings in relation to an extension at my mansion, the place of supply for his services is the UK (B2C land service is based on location of land).
As with Marie, this could avoid VAT depending on the figures, but not once the zero threshold takes effect.
The rest
- The registration threshold was increased from £70,000 to £73,000 on 1 April 2011 and from £68,000 to £71,000 for deregistration.
- A business can now give away as many samples of goods as it wants to any business or person without an output tax liability being created on the supply, as long as there is a business motive.
- Academies will have the same status as a local authority in being able to reclaim input tax on their non-business expenses.
- Businesses that do not currently have to file online will have to do so after 1 April 2012.
Neil Warren was the Taxation Awards tax writer of the year in 2008. He is an independent VAT speaker, consultant and author of works including Tolley’s VAT Planning 2010/11
