Spring Statement 2018: VAT and Indirect Tax
Alongside the Spring Statement, the government published a number of documents which may ultimately lead to future changes to the VAT regime.
The Office of Tax Simplification highlighted in 2017 that the current VAT threshold appears to disincentivise certain businesses from expanding beyond the point at which they have to start charging VAT to their customers, and dealing with all the associated administrative requirements.
The government has now published a call for evidence to “continue the debate”. It is looking for more information on the effect the threshold has on behaviours, why it has these effects (i.e. why exactly businesses would want to remain below the threshold), and what could be done in light of this.
On this final point, the government has suggested ways in which the transition from not being registered, to being registered, might be “smoothed”. These suggestions will all add some measure of complexity to the system as a whole, and the question now is whether any benefit can outweigh this.
The UK VAT registration threshold is high when compared to other European thresholds. We could possibly see a drop in the registration threshold in the future but this would only be after further consultation on the impacts for small businesses.
Split Payment Method of VAT collection
As part of its efforts to keep pace with increasing amounts of online trading, the government has published a consultation document on a proposed “split payment mechanism” for VAT purposes. This would allow VAT to be extracted from online sales made by overseas suppliers in “real time”, with the VAT amount being deposited directly with HMRC.
HMRC estimate that for the year 2015/16 the amount of uncollected VAT on sales made online was between £1bn and £1.5bn. This is a substantial sum, and while the design of any new mechanism will need careful consideration to ensure it is fair and workable, the need for some kind of solution to this problem is difficult to dispute.