Autumn Statement 2016: VAT and duties
- Publish date: 26 October 2016
- Archived on: 01 January 2019
ICAEW's Tax Faculty provide analysis of the announcements relating to VAT and other duties in the 2016 Autumn Statement.
VAT flat rate scheme: anti-abuse
A new 16.5% VAT flat rate will apply from 1 April 2017 for businesses with limited costs, such as many labour-only businesses. The government says: “This will help level the playing field, while maintaining the accounting simplification for the small businesses that use the scheme as intended”.
Currently businesses determine which flat rate percentage to use by reference to their trade sector. From 1 April 2017, businesses in the Flat Rate Scheme (FRS) must also determine whether they meet the definition of a limited cost trader, which will be one whose VAT-inclusive expenditure on goods is either:
- less than 2% of its VAT inclusive turnover in a prescribed accounting period; or
- greater than 2% of its VAT inclusive turnover but less than £1000 per annum if the prescribed accounting period is one year (if it is not one year, the figure is the relevant proportion of £1,000).
Goods, for the purposes of this measure, must be used exclusively for the purpose of the business, but exclude the following items:
- capital expenditure;
- food or drink for consumption by the flat rate business or its employees; and
- vehicles, vehicle parts and fuel (except where the business is one that carries out transport services – for example a taxi business – and uses its own or a leased vehicle to carry out those services).
These exclusions are part of the test to prevent traders buying either low value everyday items or one off purchases in order to inflate their costs beyond 2%.
Draft secondary legislation will be published on 5 December 2016.
VAT relief on adapted cars for wheelchair users
The application of the VAT zero-rating for adapted motor vehicles will be clarified to stop the abuse of this legislation, while continuing to provide help for disabled wheelchair users.
The government confirms that it will consult on VAT grouping.
VAT retail export scheme
Funding will be provided with a view to fully digitising the VAT retail export scheme to reduce the administrative burden to travellers.
VAT avoidance disclosure regime
The regime for disclosure of avoidance of indirect tax will be strengthened with effect from 1 September 2017. Provision will be made to make scheme promoters primarily responsible for disclosing schemes to HMRC and the scope of the regime will be extended to include all indirect taxes.
Penalty for participating in VAT fraud
A new penalty for participating in VAT fraud will be implemented following Royal Assent to the Finance Bill 2017. It will be applied to businesses and company officers when they knew or should have known that their transactions were connected with a fraudulent default along the transaction chain. The intention is to strengthen the application of penalties to those facilitating orchestrated VAT fraud.
The Tax Faculty responded to the consultation on this proposal in ICAEW REP 179/16. We were concerned that the proposals as drafted are two wide and could have an unfair impact on those who genuinely had no knowledge of a fraud, even if HMRC thinks they should have known.
The new penalty will be a fixed rate penalty of 30% for participants in VAT fraud.
Implementation of the Fulfilment House Due Diligence Scheme
A new Fulfilment House Due Diligence Scheme will be introduced in 2018 to ensure that fulfilment houses play their part in tackling VAT abuse by some overseas businesses selling goods via online marketplaces. The scheme will open for registration in April 2018.
Power to examine and take account of goods at any place
The current customs and excise powers of inspection will be extended with effect from Royal Assent of the Finance Bill 2017. This will amend the Customs and Excise Management Act 1979 and enable officers to examine goods away from approved premises such as airports and ports, to search goods liable for forfeiture, and to open or unpack any container.
Freeplays in remote gaming duty
The tax treatment of freeplays for remote gaming will be brought more in line with the treatment for free bets under General Betting Duty. The changes will take effect for accounting periods beginning on or after 1 August 2017.
Tobacco illicit trade protocol: licensing of tobacco machinery and the supply chain
A licensing scheme for tobacco machinery to allow officials to quickly determine whether machines are being held legally will come into force on 1 April 2018. Applications for licences will be accepted from January 2018.
The fuel duty rate will remain frozen for the seventh successive year, saving motorists around £130 a year compared to what they would have been paying under the pre-2010 escalator.
Air passenger duty: regional review
A summary of responses to the consultation is being published on how to support regional airports in England from the potential effects of air passenger duty devolution. Given the strong interaction with EU law, the government does not intend to take specific measures now, but intends to review this area again after the UK has exited from the EU.