VAT and indirect tax

VAT threshold to remain frozen until March 2026

The Autumn Statement confirmed that the VAT registration threshold will remain at the current level of £85,000 until March 2026. This threshold has remained constant since 2017, when it was first frozen by the government to allow time to consider the recommendations of the Office of Tax Simplification on where it might best be set long term. However, after five years, the government has made no further comment on its intentions and allowed the threshold to gradually shrink in real terms, quietly dragging more small businesses into the VAT net. The current high rates of inflation will only accelerate this trend. Moreover, the chancellor’s observation that the UK’s threshold remains far higher than the EU and OECD averages suggests that the government has no plans to return to its previous strategy of making increases to the VAT threshold in each annual Budget. 

Government abandons online sales tax proposal

The Autumn Statement press releases include news that the government has decided not to go ahead with its proposals for an online sales tax. The government had consulted stakeholders for their views on the design of a possible new tax on online sales in the spring of 2022, with the aim of identifying whether such a tax could help rebalance taxation of the retail sector between online and high street vendors. The government’s intention was that the revenues from an online sales tax might allow for a reduction in business rates, to address concerns that retailers trading wholly or mainly from physical retail premises that pay business rates for those premises, may face an unfair tax burden compared with retailers trading wholly or mainly online. However, the consultation drew a mixed reaction from the retail sector and other stakeholders, due to the likely complexity of such a tax and doubts that it could achieve its aims. The government has now confirmed that, in view of concerns that the tax would be overly complex and risk creating unintended distortion or unfair outcomes between different business models, it will not proceed with an online sales tax. A summary of responses to the consultation will be published shortly and it remains to be seen whether the government will produce any alternative proposals to address perceived imbalances in the taxation of online and high street vendors.

Customs duty to be suspended on raw materials used by key UK manufacturers

The government plans to suspend customs tariffs for two years on the importation of over 100 different types of goods to help reduce costs for UK producers. It has yet to publish a list of the goods or specify when the relief suspensions will come into force, but it claims that the measure will remove customs duty liabilities as high as 18% on goods, ranging from aluminium frames used by UK bicycle manufacturers to ingredients used by UK food producers. This announcement will be of great interest to UK manufacturers that stand to make real and substantial savings on the cost of materials, and potentially open up new sourcing options. Manufacturers will be keen to receive precise confirmation of the goods that will be included in this tariff suspension as soon as possible. 

VAT on private school fees ruled out

The chancellor confirmed in his speech that he does not intend to impose VAT at 20% on private school fees, despite the fact that the UK is no longer bound by the EU’s mandatory VAT exemption on most supplies of education. While it always seemed unlikely that the current government would take such a step, the chancellor has now specifically ruled it out on the basis that such a sharp rise in fees would price some parents out of the market and put their children into the state school system, which would require additional funding as a result. The chancellor’s comments may have been prompted by the Labour party’s recent policy announcement that it would strip private schools of their charitable status, but the government has made no specific reference to that proposal which could deny private schools access to a variety of VAT reliefs, such as those related to fundraising activities and school buildings.