A whole lot of ground covered – and more to come for VAT

This week’s Spring Statement began with Chancellor Philip Hammond telling the House of Commons that he wouldn’t be ‘producing a Red Book’, reiterating previous announcements that the UK would move to a once-yearly fiscal event.

As such, the Statement would now be designed merely to provide forecast updates and launch various consultations, the results from which will inform the Autumn Budget.

While at 26 minutes Hammond’s speech lasted longer than expected and covered a huge amount of ground, he largely stuck to his word with a Statement that gave precious little away in terms of new policy announcements.

VAT is ‘one to watch’

Arguably the main areas to affect accountants involve VAT and business rates. A new call for evidence has been announced regarding the VAT registration threshold, and a separate consultation is being undertaken on a split payment collection method to help combat online VAT fraud.

VAT is very much going to be one to watch with regards to policy over the coming years. As it is a tax requirement on goods and services within the European Union, there may be big changes to come – although this entirely depends on the nature of any final divorce deal. Don’t expect VAT to suddenly disappear – it produces far too much money for the Treasury for that to happen – but other material changes to the policy could be around the corner.

The current VAT registration threshold of £85,000, which will remain in place for two years as announced at the Autumn Budget, is the highest in the EU. Following last Autumn’s publication of a report on routes to simplification for VAT by the Office of Tax Simplification there is speculation that the threshold will be lowered, but Government also recognises that the high threshold is good news for small and micro-businesses who are VAT-exempt as a result. This can help stimulate growth among Britain’s upcoming companies, but is costing the Treasury a forecast £2.1 billion during 2017/18.

In our own submission following last year’s Budget, AAT noted that over a third of our members (36%) would in fact like to see further increases to the threshold, with slightly less (32%) wanting to maintain the status quo and only 13 per cent calling for it to be lowered. I do wonder, however, whether a fall in the threshold is the most likely outcome. Mel Stride, Financial Secretary to the Treasury, suggested there is “growing anecdotal, academic and data-based evidence that the cliff-edge nature of the VAT threshold acts as a disincentive for small business owners who want to expand.” A reduction could force some SMEs who are currently refusing to expand because of the threshold into paying VAT, which could in turn remove a barrier to their own growth.

The consultation around split payments meanwhile makes total sense. These proposals are expected to clamp down on online businesses who fail to charge VAT on sales of goods to UK consumers, a non-compliance that cost the Treasury between £1 billion and £1.5 billion in 2016.

Government believes the best solution would be to introduce a split payment system in order to fully combat this online VAT fraud. This would be where technology in the payments industry would be used to extract VAT and send the proceeds straight to HMRC, a concept which they believe to be technologically possible. Philip Hammond, like George Osborne before him, is keen to clamp down on tax avoidance given it is an area that gets the seal of approval from most.

The greater frequency of revaluations will lead to business rates becoming fairer and more reflective of changing economic conditions

Business rates brought forward

Another important announcement within the Chancellor’s Statement was the move forward of the next business rate revaluation to 2021, from which point triennial reviews will be brought in. This is something that AAT has been calling for for some time now.

The greater frequency of revaluations will lead to business rates becoming fairer and more reflective of changing economic conditions. It will also mean that businesses will expect to see their bills change more often, but under less volatile conditions, allowing them to plan better for the future.

All quiet on the MTD front

What did surprise and disappoint me in a Statement which otherwise covered a whole range of topics was that there were no announcements regarding Making Tax Digital (MTD), the government’s £1.3 billion investment programme for HMRC to become the most digitally advanced tax administration in the world.

I had been hoping that we might hear something around the opening up of beta testing for the income tax pilot for the self-employed, which to date has been highly controlled. In addition, filing updates for income tax purposes is not the current priority. Given that initial mandation in April 2019 will only affect VAT-registered companies with a turnover of the VAT threshold (£85,000) or more, I see it as more important that they focus on the VAT part of the beta testing. I’m certain we won’t have to wait too much longer.

Brian Palmer is the tax policy adviser for AAT.

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