VAT

rest of the world, because they currently have to pay the VAT and claim it back later.

Domestic Reverse Charge

In a missing trader fraud, supplier collects VAT from a customer (who claims it back from HMRC) but disappears without paying it to the authorities. To reduce the risk of this, a reverse charge makes the customer liable to pay the VAT due on purchases. If a supplier cannot charge VAT, a fraudulent one cannot steal it. Domestic reverse charges (DRC) already exist in relation to substantial transactions in mobile phones and some other types of supply.

To counter missing trader fraud in the construction industry, HMRC planned to introduce a DRC on 1 October 2019 for supplies of construction services. In the middle of arguments about Brexit, there was a risk that the construction industry could not cope with such a radical change, so the Government decided to defer it for a year. It has been confirmed that it will be brought in on 1 October 2020. The rules and guidance available last year were criticized for lack of clarity and the likelihood that many of those affected would not be ready to comply. Anyone who buys or sells construction services should consider as a matter of urgency how they will be affected.

Sanitary products

Following a long-running public campaign, the Chancellor announced that VAT on womens sanitary products (charged to 5% VAT since 2001) will be abolished from 1 January 2021.

Digital publications

The Chancellor announced an extension of zero-rating to the digital versions of books, newspapers, magazines and academic journals, in line with their physical counterparts, with effect from 1 December 2020. In a recent tax case the Upper Tax Tribunal held that digital newspapers should be zero-rated under present law, but has appealed the judgment. Other businesses have put in claims for back tax on the strength of the decision. That case will not be affected by the change in the Budget, which will only apply going forward.

Call-off stock

Although the UK has now left the EU, in the transitional period we are still supposed to apply EU VAT law  and also to benefit from it when dealing with other countries. The Budget includes a simplification in relation to call-off stock that is physically held in another country to be available at short notice for a particular customer. If a UK trader holds its own stock in another country, it is normally necessary to register for VAT there; however, Member States are allowed to ignore call-off stock holdings for registration purposes in certain circumstances. The EU revised the rule in 2018 to take effect in January 2020; because the UK was, contrary to expectations, still a Member State at that time, we are enacting it.

It will continue to apply to foreign businesses holding call-off stock in the UK, and UK businesses holding call-off stock in the EU, at least until December 2020. The situation after that will depend on whatever deal is negotiated, but it is likely that UK businesses will not then enjoy any simplifications, and will have to register for VAT and appoint a fiscal representative if they hold stock in an EU country.