In line with recent budgets, the Government’s Indirect Tax measures have mainly focused on targeted anti-avoidance measures in respect of VAT. However, it is interesting to note the continued adoption of EU legislation, in this case on vouchers, given the potentially imminent withdrawal of the UK from the EU.


Reverse Charge in the Construction Industry and Anti-Avoidance Amendment

As announced in the 2017 Budget, the Government will introduce a domestic VAT reverse charge for the provision of VAT in the construction industry with effect from 1st October 2019. This will shift the responsibility of paying the VAT along the supply chain.

The current legislation requires businesses to aggregate the domestic reverse charge services received with their own turnover, to determine whether the VAT registration threshold is exceeded. However, following consultation, in certain circumstances this legislation will be disregarded.


This disregard will be welcome for small business in the construction industry trading below the VAT registration threshold which would become VAT registrable in its absence.

Insurance Intermediaries – Offshore Loops

With effect from 1 March 2019, insurance intermediaries will no longer be able to recover VAT on costs where the insurance customer belongs in the UK.


This measure targets offshore loops whereby services are provided to non-VAT territories enabling VAT recovery even though the ultimate insurance customer is in the UK.

Unfulfilled Supplies

Where a customer prepays for goods or services, fails to collect what has been paid for and does not receive a refund, the prepayment is not always subject to VAT on the basis that no supply has been made. With effect from 1 March 2019, the rules will be amended to bring all prepayments within the scope of VAT. A Revenue & Customs Brief providing further detail will be issued by the end of the year.


It will be interesting to see the scope of this measure, and in particular, whether this will challenge the treatment of forfeited deposits for hotel “no-shows” which, following settled EU caselaw, are treated as outside the scope of VAT.

Split Payment

With effect from 1 March 2019, insurance intermediaries will no longer be able to recover VAT on costs where the insurance customer belongs in the UK.


Whilst reducing VAT fraud is understandable, it will be crucial that the mechanism does not burden the industry with undue compliance cost and delays.

Price Reductions and VAT Adjustments 

The Government has announced that it will introduce new rules to require VAT adjustments to be made within set time limits and require credit notes to be issued to customers where there is a retrospective reduction to the price for goods or services. The changes are expected to be introduced in September 2019.


A previous legislative attempt by HMRC to time limit the VAT adjustment mechanism was repealed in 2009, following a successful challenge in the UK courts. Depending on the drafting, these new measures could be subject to similar challenges.


The Government will implement the EU legislation on the treatment of vouchers, replacing the existing concepts of retail and credit vouchers with single purpose vouchers and multipurpose vouchers. The VAT on the former will be due on issue of the voucher and not on redemption, whereas for the latter, VAT is due on redemption.

These rules will affect vouchers issued on or after 1 January 2019.


The rules relating to vouchers are complex and any attempt to simplify the treatment is welcome. This may also indicate a keenness on the part of the Government to keep the UK and EU VAT regimes aligned as much as possible even after the UK has formally left the EU.


Following previous announcements and consultations, the Government will introduce legislation to extend the eligibility of certain non-corporate bodies to join UK VAT groups. In addition, existing guidance will be released to amend the definition of “bought in service” that are subject to VAT.


Any extension to the entities that are able to join a VAT group is welcomed.


The Government will publish its response for the call for evidence on the impact of VAT and Air Passenger Duty on tourism in Northern Ireland which confirms there will be no changes to either regime.


Many EU countries, and the Isle of Man, already apply a reduced rate of VAT to services in the tourism sector so a reduction in the VAT applied to tourism would have brought Northern Ireland in line with much of the rest of the EU. There have long been calls to reduce the rate of VAT on tourism in the UK, so many businesses may be disappointed with the outcome of this review.  

For further information please contact Linda Bertolissio or Riina Rintanen.