VAT Changes: Budget 2014

Changes to the VAT registration threshold and other business-related VAT matters.

VAT registration threshold

The VAT registration threshold will increase to £81,000, previously £79,000 and deregistration threshold will increase to £79,000, previously £77,000.

Business-to-consumer (B2C) supplies

The European Union place of supply VAT rules will change from 1 January 2015. The changes impact B2C supplies including e-services.

From 1 January 2015, the place of taxation for certain supplies will be determined by the location of the customer. 

HMRC in its note rightly states that ‘this is a significant change and in order to work out the country in which VAT due must be paid, you will need to keep additional information that was not required before’. 

It is also highlighted that to ‘save you having to register for VAT in every EU Member State, where you supply broadcasting, telecommunications and e-services, you may opt to use the VAT Mini One Stop Shop online service (VAT MOSS). This will be available on 1 January 2015, but you will be able to register to use it from October 2014’. 

These are a few of the facts highlighted:

  • if you supply broadcasting, telecommunications and e-services (BTE) services to businesses only (including those who are self-employed) then these changes do not affect you;

  • if you are a business supplying BTE to consumers, these changes will affect you, so you need to start planning for them now;

  • if you supply BTE services to a mix of businesses and consumers, then these changes affect you as far as the supplies to consumers are concerned;

  • if your customer does not provide you with a VAT registration number (VRN), and you have no other information that suggests that your customer is in business and VAT registered, you can treat this as a B2C supply;

  • if you supply consumers through an online store or gateway, and the online store or gateway is acting in its own name, then they will normally be considered to be supplying the consumer. This means that the online store or gateway will be responsible for declaring and paying any VAT due. You will be treated as supplying the store and so will be making a business-to-business (B2B) supply, rather than a B2C supply. If this is the case, these rule changes do not directly affect you. 

These changes to the place of supply rules were made by the introduction of legislation announced in the Budget 2013.

MOSS was unanimously agreed by the member states in 2008, so it has been long anticipated. Currently, intra-EU supplies of BTE services to non-business customers are subject to VAT in the member state where the supplier belongs. From 1 January 2015 the place of supply will change to where the customer belongs. 

There will be further changes to the agency legislation to reflect these rules for taxable persons acting in their own name on behalf of another when supplying telecommunication or e-services. 

The place-of-supply rule changes could lead to a BTE supplier having to register in each member state they make supplies and suffer the administrative burden that comes with it; that’s a potential of 28 VAT registrations. The MOSS will be implemented from 1 January 2015, giving the supplier an option of registering in just one member state and accounting for any VAT due to any member states through a single MOSS return. 

This should remove the incentive for businesses to locate offshore and level the playing field for all BTE suppliers.

There will be additional changes to the place-of-supply rules to align with other member states and to close minor loopholes used by certain anti-avoidance schemes.

Prompt payment discount

HMRC is to align its interpretation of prompt payment discount (PPD) with the European Union Principal VAT Directive (PVD).

Currently in the UK, suppliers account for VAT on the discounted price even if a prompt payment discount is not taken.

Under the PVD, VAT to be accounted for on consideration is actually received.

The change is also due to PPDs being offered to the final consumer as this traditionally was only used for transactions between business to business.

The change will affect supplies of:

  • telecommunication and broadcasting services where there is no obligation to provide on or after 1 May 2014;

  • all other supplies from 1 April 2015 unless for revenue protection purposes it is necessary to bring forward the implementation date for specified supplies. 

Reverse charge for gas and electricity

This measure is to prevent the fraudulent abuse of wholesale gas and electricity supplies by making the customer liable to account for the VAT. This change will not apply to domestic supplies or to businesses not registered or liable to be registered for VAT.