Twas the election before Christmas

French Duncan | 10 December 2019

It’s that time of the year again and you just can’t escape it no matter how hard you try, it’s on the TV, radio, billboards, yes, its Christm… General Election time! Not what you normally find yourself gearing up for in December, but let’s have a look at what the parties have in store for us as far as VAT is concerned. In fairness, the two main UK political parties have been pretty quiet regarding VAT changes. This may be due to the seemingly everlasting Brexit situation.

Labour have stated their intent to ‘close the tax loopholes enjoyed by elite private schools’ which could result in 20% VAT being applied to private school tuition fees. This could also lead to an increase in business rates they pay. A change to business rates for private schools is one that is already earmarked next year by the Scottish Government in line with the Barclay review report recommendations.

Both Conservative and Labour have pledged in their manifestos not to increase VAT. This is hardly surprising given the level of VAT receipts already collected for the treasury, with HMRC reporting £126bn of VAT collected in 2018/19 – a rise of £7bn from 2017/18. An early Christmas present indeed for HM Treasury.

As well as advocating no increase in VAT, the SNP have included various VAT changes in their manifesto, including the removal of VAT on e-books and women’s sanitary products. Interestingly, it was cited by previous UK governments that VAT on e-books could not be changed in the UK under EU law; however, changes were made at EU level some time ago to grant Member States the authority to make changes on this very point. The SNP have also proposed a reduction in VAT for the hospitality sector in order to encourage local tourism and staycations, as well as proposing a reduction in VAT on bicycles & low emission vehicles, and also energy efficient home improvements. More specifically on the Scottish front, the SNP are continuing to press for a refund of VAT to Scotland’s emergency services.

Although the Liberal Democrats might be heard singing the festive classic “all I want for Christmas is EU”, they are also proposing to reduce VAT on home insulation and electric vehicles, as well as removing VAT on women’s sanitary products. They have also proposed introducing a VAT refund scheme for colleges which would bring them in line with a similar VAT refund scheme for Academies.

While the SNP are not going to be the party of government after the election, and it would take a significant swing in previous voting for the Liberal Democrats to obtain a majority of seats at the House of Comments, there is a distinct possibility that either or both parties could hold a negotiation position. This will depend on how the election results unfold, although I’m not sure how far up their respective agendas any proposed VAT changes would be.

It is worth noting that however long the Brexit situation rumbles on there will continue to be changes to UK VAT, irrespective of any changes made by the government in power. This is as a result of VAT change at EU level, mainly focusing on the movement of goods.

The EU is moving towards a ‘definitive’ VAT system. One of the objectives of this is the destination principle, whereby VAT would be applied in the country where goods are consumed. Proposed changes under the VAT Action Plan could see EU Member States have more autonomy on the VAT rates they apply to the sale of goods and services – provided this does not interfere with the operation of the Single Market. The EU is hoping to move to the definitive system by 2022 and are working to a VAT Action Plan to implement the changes with some ‘quick fixes’ coming into effect from 1 January 2020. These quick fixes are mainly to standardise some of the rules surrounding cross-border movement of goods.

While changes at UK VAT level won’t be known until the political situation becomes more certain, it is clear that VAT changes will continue to take place at EU level and will impact on the UK to some degree, depending on how Brexit unfolds. This will be of particular relevance to business involved in the cross-border movement of goods.
As ever, the world of VAT is ever changing and far from predicable; and that’s without really discussing the vagaries of Brexit!

Here’s wishing you all predictably Merry Christmas and a prosperous Brexit in the New Year!

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