As 2018 draws to an end and the New Year approaches, it seems like a good time to consider what is happening in the ever-changing world of VAT.
Review of 2018
Although there wasn’t much in the way of significant legislation introduced in 2018, the UK and European courts were as busy as ever delivering decisions on a wide range of VAT issues.
As always land and property was a popular and important area and we saw a common sense decision reached in Scotland whereby the Court of Session ruled in the case of Sibcas that the supply of temporary modular accommodation was not a supply of immovable property, meaning that the taxpayer was correct to treat their supplies as subject to the standard rate of VAT and not an exempt supply of land. There was disappointment for Wakefield College as the Court of Appeal VAT denied zero-rating on the construction of a new building on the basis that (inter alia) the level of fees paid by subsidised students was at a significant level and as it was not means tested meant that the college was carrying out business activities.
In other areas, Ryanair went to the European court and won! The CJEU ruled that they could recover VAT incurred on costs relating to its failed takeover bid of Air Lingus (due to competition rules) as there was a clear intention to provide management services after acquisition. There was a painful decision for DPAS Ltd – a company providing payment plans for dental treatment - as the CJEU concluded that their services did not fall within the VAT exemption for payment processing. However, there was a cheerful decision for Character World Ltd as the First-Tier Tribunal ruled that their licenced product described as “fleece blankets” qualified as zero-rated children’s clothing.
Looking forward to 2019?
We will see Making Tax Digital becoming mandatory for most businesses in April. The VAT reverse charge in the construction industry will also be introduced on 1 October 2019. This measure is designed to reduce VAT fraud, although it could result in accounting and cash flow issues in the short term for many traders.
There were also some surprising VAT announcements in the recent budget. Firstly, there was an early Christmas present for smaller businesses as it was confirmed that the VAT registration threshold will remain frozen for two years. Micro-traders supplying digital services to EU consumers will also welcome the introduction from 1 January 2019 of a new digital supplies threshold. It means that where the total annual value of B2C digital supplies to all EU countries is below £8,818, then the sales will be dealt with under UK VAT rules (avoiding an immediate requirement to account for VAT across the EU).
For businesses selling vouchers there will be significant changes from 1 January 2019. VAT will now be due at the point of sale on vouchers where the VAT rate of the goods or services is known (a single purpose voucher). Where the rate of VAT is not known at the time of issue then VAT will be accounted for when the voucher is redeemed (a multi-purpose voucher).
The way surrounding how VAT should be accounted for on ‘unfulfilled supplies’ will change from 1 March 2019, meaning a potentially significant change for businesses that receive deposits or prepayments. HMRC’s new policy means that where VAT has been accounted for on a prepayment and the customer decides not to take up the goods or services, then the payment made will remain subject to VAT and the supplier will no longer be allowed to make a VAT adjustment– unless the payment made is actually refunded to the customer.
The scope of VAT Grouping will be extended to allow non-corporate entities, such as sole-traders and partnerships to join a VAT group. Any decision to join or form a VAT Group should be taken carefully as there are pros and cons to consider. There will also be a refinement to the definition of a “bought in service” within VAT Grouping legislation, as an anti-avoidance measure.
This update highlights some of the main changes in the area of VAT – all this and no mention of the ‘Brexit’ word… Ho-ho-ho!