Budget 2020: VAT overview

While the extension of the VAT zero-rate for digital publications on 1 December 2020 will attract most of the coverage, there is also good news for those buying and selling goods internationally as the postponed VAT accounting rules have been confirmed to take effect from 1 January 2021. There are a raft of consultations taking place to ensure that the government capitalises on the flexibility it will enjoy next year once EU restrictions on the VAT regime are lifted.

Digital publications to be zero-rated in time for Christmas

The ‘Axe the reading tax’ campaign has succeeded in convincing the government that from 1 December 2020 no VAT will be due on e-publications (at present the standard rate of VAT is due). While the details of the legislation will be the subject of a consultation later this year the government announced that e-books, e-newspapers, e-magazines and academic e-journals will be entitled to the same VAT treatment as their physical counterparts. 

Tampon tax abolished

The so-called tampon tax on women’s sanitary products (currently VAT is charged at 5% on these products) will be abolished from 1 January 2021. There is no word on whether the government will continue to support those women’s charities that have benefited from government support from this tax since 2015.

Quick fixes implemented for call-off stock

As the UK remains obliged to implement EU VAT changes, the government confirmed the implementation of the VAT quick fixes related to call-off stock. This means that the UK rules for goods removed from an EU Member State since 1 January 2020 and stored in the UK for onward sale to UK customers will be brought inline with other EU Member States, at least until the UK departs from the EU VAT union.

Postponed VAT accounting re-announced

Postponed VAT accounting will apply from 1 January 2021 which means that import VAT due on goods arriving from EU or non-EU countries after this date need only be paid on submission of the importer’s VAT return. While this will provide an important cashflow saving for most importers, it had been part of a package of measures that were pledged last year when it was possible that the UK could have departed the EU without a deal. 

Avoidance, evasion and unfair outcomes

The latest Budget information reiterates HMRC’s postponement of the domestic reverse charge for construction services until 1 October 2020. 

Reviews planned for VAT and financial services 

Two consultations have been promised that will affect VAT in the financial services sector. An industry working group will be set up to perform a general review of the VAT treatment of financial services. The government will also include the VAT treatment of fund management fees in a wider tax review of the UK’s funds regime. A response document and a second stage of consultation will soon be published in respect of last year’s review of Insurance Premium Tax on administration and arrangement fees. 

Post Brexit reviews

A number of consultations will rethink aspects of the UK’s indirect tax system after the end of the Brexit transition period. These include duty and tax free shopping by travellers, the retail export scheme, VAT and excise duty treatment of goods crossing borders  VAT treatment of goods from overseas sellers and potential reforms to excise duty on alcohol. 

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Philip Munn Philip Munn