Budget 2020: VAT threshold frozen at £85k

The VAT threshold has been held at £85,000 in Budget 2020 with the government committing to its triple lock on VAT rates but has outlined plans for a number of reviews in light of the UK’s departure from the EU

As planned at Budget 2018, the government has confirmed that the current VAT threshold of £85,000 will remain unchanged for 2021-22.

VAT rates remain unchanged across the board, except for the removal of VAT on sanitary products from 1 January 2020.

VAT currently raises £161bn a year and rates are tied under EU legislation so the government has no scope to change rates radically, for example by exempting products or using variable rates, until the UK leaves the European Union on 31 December 2020 after the transition period.

The Budget also confirmed that it will introduce postponed VAT accounting from 1 January 2021 to change the time that import VAT is due to HMRC, which will apply to all imports of goods, including from the EU.

The government said this would provide ‘an important cashflow advantage to businesses across the country that are integrated in international supply chains as they adapt to the UK’s position as an independent trading nation’.

The cashflow impact of postponed accounting will cost the Exchequer £3.5bn in 2020-21, reducing to £180m in 2022-23, before balancing out to a positive contribution of £910m in 2023-24.

The domestic reverse charge for VAT on construction and building services for commercial transactions will go ahead from 1 October 2020, after the implementation date was delayed by a year last September following widespread confusion about how the new system would work.

The measure will see VAT paid upfront, which the government believes will crack down on VAT fraud, particularly losses through so-called ‘missing trader’ fraud.  

With a view to a post-Brexit VAT environment, the government is planning a number of consultations and will set up an industry working group on the future of VAT and financial services.

The government will also undertake a review of the UK’s funds regime during 2020. This will cover direct and indirect tax, as well as relevant areas of regulation, with a view to considering the case for policy changes. The review will also consider the VAT treatment of fund management fees and other aspects of the UK’s funds regime.

There will also be an informal consultation over spring 2020 on the VAT and excise treatment of goods crossing UK borders after the EU exit transition period.

New entry and exit rules for the VAT agricultural flat rate scheme (AFRS) will be introduced following informal consultation with stakeholders in 2019.

On the VAT Quick Fixes Directive, there will be new legislation to introduce simplified rules for the VAT treatment of intra-EU movements of call-off stock, allowing businesses to delay accounting for VAT until the goods are called-off. The legislation will apply to goods which are removed from an EU member state on or after 1 January 2020.

On devolved taxes, the government is working with the Scottish government to devolve further tax and welfare powers as set out in the Scotland Act 2016. This includes transferring responsibility for half of the VAT revenues generated in Scotland to the Scottish government from 2021.

From 1 January 2021, the tampon tax will be abolished through the application of a zero rate of VAT on women’s sanitary products. This measure is set to cost an estimated £15m a year from 2021-22.

It has also decided to waive VAT for Welsh TV station S4C, which provides viewers with content in the Welsh language. The government will legislate to enable S4C to recover any VAT it pays in full.

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