Budget 2020 analysis: VAT and indirect tax

In the aftermath of Budget 2020, MHA Moore and Smalley tax specialists provide an analysis of the announcements made by Chancellor Rishi Sunak in his first budget.  In this blog we review the changes to VAT and other indirect taxes.

Digital publications

After numerous trade body representations and many legal challenges, most recently by News Group Newspapers, we finally have a change to the VAT treatment of digital publications. This is very welcome, as it recognises that the ‘printed word’ has moved substantially beyond paper-based publications. Zero-rating is available for books, booklets, brochures, pamphlets, leaflets, newspapers, journals, periodicals, painting books, music, maps, charts and topographical plans. This list brings to life the scope of very welcome VAT relief across the sector, particularly in the education sector.

Tampon Tax

After years of campaigning and an acceptance by government of a need for change, VAT will no longer be charged on women’s sanitary products from 1 January 2021.

Import VAT

From 1 January 2021, importers will use postponed VAT accounting for all imports of goods, whether from the EU or further afield. This is a welcome cash flow boost for UK manufacturers and distributors and will provide a consequent reduction in the bank guarantee or similar mechanism required for a business’ deferment account.

Red diesel

In the Budget, the Chancellor announced the scrapping of the fuel duty relief for red diesel from April 2022. This was quickly watered down by an announcement that the relief would be maintained for agriculture, (including the fishing industry), rail and for non-commercial, including domestic heating. The government will also consult on other uses including UK inland ferries and public entertainment. As it stands, the construction industry will be hardest hit by this change.

Other changes

  1. Fuel duty frozen for a 10th year in a row
  2. Duties frozen on beer, spirits, wine and cider. This saves a penny on a pint!
  3. Domestic reverse charge for building and construction services, on its way back for a second time from 1 October 2020
  4. A well overdue but still ongoing consultation on the modernisation of VAT rules relating to partial exemption and the capital goods scheme. This will hopefully result in an increase in thresholds, alleviating the need for smaller businesses to deal with these complex VAT rules.

For further information contact Jonathan Main, our VAT and indirect tax partner.