Potential amendments to the UK VAT legislation

The Government has recently published a policy paper concerning a package of tax and customs administration and simplification measures.

The paper covers a wide range of taxation issues, however there are also a few matters around VAT that are of interest to us:

VAT online marketplace liability

HMRC has expressed interest in further reviewing the VAT rules around marketplaces and their obligations in the UK. The issue continues to be poor compliance from overseas sellers that sell on various marketplaces to UK customers. As such HMRC would like to engage with stakeholders (i.e. parties that have an interest in how these rules should apply) to discuss the current situation and likely to amend the existing legislation.

This is likely the first step towards extending marketplace liability for supplies made by their vendors. At some point in the future we expect HMRC to require marketplaces to charge VAT to the end customer and remit it to HMRC instead of leaving this obligation to the overseas vendor in most instances.

Capital Goods Scheme

Certain types of assets with a high value currently fall under a special regime called the Capital Goods Scheme. Land, building or refurbishments with a value of £250,000 (net of VAT) or more, and computers, aircraft, boats, ships or other similar vessels with a value of £50,000 (net of VAT) are examples of assets that may fall under this regime.

VAT charged on these assets is fully recoverable by fully taxable businesses (subject to standard rules and conditions). Where the buyer is not fully taxable, input VAT recovery on these types of assets will depend on the proportion of taxable activity of the taxable person. However, as this percentage can vary significantly over the years, and these assets have a long useful life, the VAT rules state that adjustments need to be made to the amount of input VAT recovered on the purchase of these assets for a period of 10 years for land, building and refurbishments and 5 years for the other assets.

The above thresholds have been in place for some time now and HMRC would like to update them. The stated intention is to increase the threshold for land, building and refurbishments from £250,000 to £600,000 in order to simplify VAT accounting and lower the administrative burden on those taxable persons that have to use this scheme.

Unfortunately, it is not clear at this point what happens to assets currently falling under Capital Goods Scheme with a value above the current threshold (£250,000) but under the new £600,000 threshold. The sensible thing would be not to change their VAT treatment until they fall outside of the regime.

However, as a result of the recent changes to the VAT legislation a number of private schools have become partially taxable persons and are therefore entitled to recover some of the VAT paid on assets falling under the Capital Goods Schemes. It remains to be seen if the change of threshold will affect their right to recover input VAT on historical assets.

Separately, computers with a value above £50,000 will no longer fall under the Capital Goods Scheme. We expect the impact in this case to be marginal.

VAT relief on business donations of goods to charity

The government has also published a consultation on the VAT treatment of business donations of goods to charity. The consultation seeks views on a new VAT relief aligning the treatment of goods donated for distribution to those in need or use by the charity, with the existing relief for goods donated for onward sale.

Other taxation matters

The policy paper lists a number of other potential amendments and consultations concerning other taxes. This includes transfer pricing, gambling duty, landfill tax, vaping products duty, soft drinks industry levy, customs and others. For the full content of the paper please see the government’s website.

If you believe the above proposals to amend the VAT legislation may impact you and would like to have a further discussion around them, please reach out to us.