Spring Budget and Indirect Taxes

There are a few changes to report on VAT from the recent Spring Budget, as detailed below.  

VAT registration threshold increased

 Small businesses have lobbied the Chancellor for an increase in the VAT threshold for many years, and finally, this year’s Budget delivered some results. With effect from 1 April 2024, the VAT registration threshold will increase from £85,000 per annum to £90,000.

From the same date, the threshold for de-registration will increase from £83,000 to £88,000.

Businesses that make mainly zero-rated supplies but are below the registration threshold can still become VAT registered on a voluntary basis and reclaim VAT on costs. The measure also makes no changes to the obligation for overseas businesses that trade in the UK to register regardless of what their turnover is.

Whilst long-awaited, the increase is not particularly large, particularly given the rates of inflation in recent years. It is expected that the change will be insufficient to satisfy many. 16 22 For now, businesses below the published threshold still need to monitor their turnover on a rolling monthly basis and compare it to the existing annual registration threshold. They also should be mindful that if they expect their turnover to exceed the threshold over the next 30 days, they have an obligation to notify HMRC of their requirement to VAT register.

 VAT Retail Export Scheme

A good deal of recent publicity has focused on whether the historic VAT scheme, allowing overseas visitors to reclaim VAT incurred on UK purchases, should be reintroduced. Retailers have argued that being able to sell goods to visitors ‘tax free’ was essential to encouraging sales of expensive and luxury goods (in particular) and the withdrawal of the scheme several years ago was considered to have damaged businesses.

The OBR has reviewed the scheme for the government and commented upon its effectiveness in encouraging spending by UK visitors, but –for now anyway –the government has announced only that it will seek out further views before deciding on the scheme’s future.

It remains the case that retailers can zero rate supplies of goods they ship directly overseas, but doing so can be administratively cumbersome and often does not appeal to the shopper. So, this will be disappointing news for retailers in parts of the UK where sales to overseas visitors form a sizeable part of their business.

 VAT & Carbon Credit Trading

In the drive towards net zero, offsetting emissions by purchasing carbon credits is becoming increasingly popular for large and small businesses alike.

The VAT liability of carbon credits has been relatively uncertain over the years, depending mainly on the type of credit (‘compliance’ market credit or ‘voluntary’ market credit). Compliance market credits are a part of government designed schemes to reduce emissions and have been seen as non-business for VAT purposes and outside the scope of the tax.

 Credits in the less regulated voluntary market are more difficult to define and have generally been viewed as relating to a taxable supply for VAT purposes and standard rated when supplied in the UK.

It is likely that the application of VAT to such trades may disincentivise VAT exempt sectors from taking part, hampering net zero plans in the process. The Budget announced that trades in carbon credits will be made zero rated for VAT. This was expected to help enhance carbon trading in sectors that have been averse to taking part so far.

 DIY Housebuilders VAT claims

The DIY Housebuilders VAT scheme is of relevance to anyone who builds their own home or converts a non-residential building into their own home and wants to reclaim the VAT on their expenditure.

From the date of Royal Assent to the Spring 2024 Finance Bill,  HMRC will have increased powers to ask for additional documentation to evidence a DIY Housebuilders claim.

The claim process now includes a digital option and a claim extension to 6 months after the build completion. The provision announced in the Budget will allow HMRC to make requests for the provision of documentation including supplier invoices after the claim has been submitted in order to improve their checks on DIY claims prior to any repayment to the claimant.      

As usual, if you would like our advice on any of the above issues please do get in touch with your usual contact in our Team or send an email to IndirectTax@Xeinadin.com

This note if for information only and specific advice should always be sought