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16 March 2016

VAT registration and deregistration

The government will increase the VAT registration threshold in line with inflation to £83,000 from 1 April 2016. This will save around 2,000 small businesses from having to register for VAT by the end of the 2016-17 financial year.

The deregistration threshold increases from £80,000 to £81,000.

Tackling VAT evasion by overseas sellers

The government is taking firm action to protect the UK market from unfair online competition. Some overseas traders from beyond the EU avoid paying UK VAT, undercutting online and high street retailers and abusing the trust of UK consumers who purchase goods via online marketplaces.

The Finance Bill 2016 will contain provisions that will help to protect consumers and level the playing field for businesses. HMRC will be able to require non-compliant overseas traders to appoint a tax representative in the UK, will have greater flexibility in respect of seeking a security and will be able to inform online marketplaces of the traders who have not complied. If traders continue to evade VAT and no action is taken to prevent the fraud, then the online marketplace can be made jointly and severally liable for the unpaid VAT of an overseas business that sells goods in the UK via the online marketplace’s website.

The government will also introduce a due diligence scheme for the fulfilment houses where overseas traders store their goods in the UK. This will make it harder for VAT evading firms to trade. Fulfilment houses will need to meet “fit and proper” standards in order to operate. They will have an obligation to register and maintain accurate records once online registration opens in 2018. They will also have to provide evidence of the due diligence they have undertaken to ensure overseas clients are following VAT rules. The UK has already raised this issue with the EU and international partners, and the EU and OECD’s current work programmes include further work to help combat this fraud, including looking at alternative mechanisms for the collection of VAT.

Tackling marketed tax avoidance

The government will:
  • consider the case for clarifying what constitutes reasonable care in avoidance penalty cases;
  • consider options to address the issue of those who “enable” tax avoidance schemes; and
  • consult during the summer on updating the VAT Disclosure of Schemes Regime (VADR),
  • including by extending coverage to other indirect taxes and by alignment with the Disclosure of Tax Avoidance Schemes (DOTAS) regime.