In his Spring Statement the chancellor Phillip Hammond announced a review of the VAT registration threshold which currently stands at £85,000. While the outcome of this review could have far reaching consequences we have been assured that this threshold will remain unchanged until March 2020, which gives will give us some degree of certainty for the time being.
There is a suggestion that the registration threshold could come down as low as £25,000 with the promise of a level playing field for business. No longer would businesses have the option to suppress the level of activity in an effort to remain outside the scope of VAT. They could then concentrate on achieving the maximum level of activity instead. While it has been suggested that this could be good for business it is not difficult to see the main driving factor when it has been estimated that there could only be an increase in VAT collected by the exchequer with an additional 1.5 million businesses registered for the first time.
This review is being undertaken at the same time as a consultation on the VAT rate applied to tourism in Northern Ireland. This would involve cutting its VAT rate for the tourism sector, including hospitality services such as hotels and restaurants from 20% in line with Ireland’s rate.
The UK is one of few countries in the European Union to charge VAT at the full Standard rate on hospitality services. Ireland’s rate of 9% is very similar to the rate enjoyed in France and Italy of 10%, while Germany has a rate of 7% for some hospitality services. These countries have taken advantage of European Union rules which allow governments to implement a reduced rate of VAT for tourism as one of only a limited number of sectors where this is permitted.
For a long time now there has been a drive from a Campaign led by businesses in the sector together with organisations such as the British Holiday Association and the British Association of Leisure Parks to cut tourism tax. While their objective is to cut the tourism rate in the whole of the United Kingdom the proposed cut in Northern Ireland could see a boost to tourism for at least part of the UK.
While the proposed changes to VAT could be driven by BREXIT it is likely that this could have a far reaching effect on the tourism economy as a whole.
By Sean Smith
If you would like help assessing the impact on these changes to your business, or if you would like to discuss any aspect of these please contact your Thomas Westcott representative.