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Written by: David Wilson

David Wilson

Technical Associate Director

The non-Brexit VAT challenges for 2019

A great deal of attention is, understandably, focused on the EU Withdrawal Agreement and the UK’s future trading relationship with the EU. Given the uncertainty surrounding the final agreement, it is unclear how and when the application and reporting of VAT and duty will be distinguished from current requirements, and/or whether VAT changes proposed by the EU would be applicable to the UK during any ‘transitional’ period.

Whilst those changes to the UK’s relationship with the EU will undoubtedly, through the fullness of time, have an impact on the VAT and customs duty accounting between UK and EU businesses, there are quite a few VAT changes during 2019 that may have a more immediate impact.

For example, under Making Tax Digital (MTD) requirements, all VAT registered businesses with taxable turnover above the VAT registration threshold must, during 2019, maintain their VAT records and submit their periodic VAT returns using MTD compatible software.

For the vast majority of these businesses, MTD requirements apply to all VAT returns starting on or after 1 April 2019, albeit for more ‘complex’ businesses, this will be deferred for six months.

From 1 March 2019, changes will apply to the VAT treatment of prepayments whereby VAT will be due on all prepayments for goods and services, even when the underlying supply does not take place, unless the customer receives a refund. This measure would, for instance, particularly impact ‘forfeited deposits’ on a hotel booking.

More immediately, from 1 January 2019, any business, including retailers and intermediaries, involved in the supply or redemption of vouchers will be affected by the transposition of EU VAT rules into UK legislation. The new VAT rules distinguish between Single Purpose Vouchers (SPV) - where the voucher can only be used for goods/services at a single rate of VAT and where the place of supply of the relevant goods and services is known at the time the voucher is issued, and Multi-Purpose Vouchers (MPV) - being ‘any voucher which is not an SPV’.

In the construction sector, where payments are required to be reported through the construction industry scheme (CIS), VAT ‘reverse charge’ rules will come into effect from 1 October 2019 whereby the recipient will be responsible for accounting for VAT on the supply. Whilst main contractors may have the expertise to accommodate the application of the VAT reverse charge, sub-contractors will have to know if, and when, the reverse charge will apply, and the impact such would have on their use of the simplified ‘flat-rate’ VAT scheme.

Other VAT developments expected during the course of 2019 include changes to VAT grouping rules; the VAT treatment of credit notes; a VAT ‘split-payment’ mechanism for those using online platforms; and legislation aimed at preventing a version of VAT avoidance (known as ‘offshore looping’) that involves UK insurers setting up associates in non-VAT territories and using these associates to supply their UK customers.

No matter what VAT challenges ultimately result from Brexit, the VAT changes which will take place in 2019 will certainly have a more immediate impact on many UK businesses.

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