VAT news – a Spring roundup

If you follow the financial news, you’ll have noticed a lot of recent stories about Value Added Tax (VAT). Although it may seem an unlikely hot topic, these stores do remind us that VAT isn’t set in stone – and that interpreting the VAT rules isn’t always as simple as you might think. To bring you up to date with VAT news, we’ve put together this brief Spring roundup.

The VAT registration threshold has changed

In the 2024 Spring Budget, Chancellor Jeremy Hunt announced a change to the VAT registration threshold. On 1st April 2024 this came into force. Before, you had to register if your VAT taxable turnover was £85,000 or more. This has now gone up to £90,000.

The government predicts that this change will take some 28,000 businesses out of paying VAT. It will also mean the UK has the joint highest threshold in the Organisation for Economic Co-operation and Development.

However, if your business has now dipped below the new threshold, don’t rush to de-register from VAT. Depending on your business, there may be financial and other benefits to remaining registered. If you’re a THP client, we recommend speaking to one of our specialist VAT accountants today. It’s also worth remembering that, with inflation, a £5,000 change isn’t huge. We can see a situation where many businesses de-register, only to discover they have to deal with the hassle of re-registering shortly afterwards.

VAT receipts are up

Perhaps the least surprising news is that VAT receipts are continuing to rise. In 2022/23, VAT receipts stood at £159.7 billion, or 6.3% of GDP. This was up from £157.5 billion the previous year. Indeed, VAT receipts have gone up every year since 2010, with the exception of the COVID-19 years of 2019 to 2021. This fall can partly be explained by the VAT payment deferment policy, designed to help businesses weather the pandemic.

The latest VAT news on marshmallows

Back in 2022, we reported on the legal battle between HMRC and a marshmallow manufacturer about whether ‘Mega Marshmallows’ – the sort you toast over a fire – were in fact VAT rated goods.

Well, the good news is that an Upper Tribunal has now solved this question once and for all. And the answer wasn’t the one HMRC wanted.

In case you’re thinking of selling marshmallows in the near future, here’s a quick guide to their VAT position.

• Tiny marshmallows, such as the ones you’d use in case or biscuit recipes, are zero rated for VAT. This is because they’re generally marketed as ingredients.
• Normal sized marshmallows. These are standard rated for VAT. This is because they’re considered to be confectionary.
• Really big marshmallows. These are zero rated for VAT. This is because they usually require additional preparation (such as toasting them).

We’ve been down a similar road before, notably in determining whether a Jaffa Cake is a cake or a biscuit for VAT purposes. While all this seems lighthearted, it does highlight the importance of making sure your products and services are correctly rated for VAT. If they’re not, you could end up with a large bill or a legal battle.

Changing attitudes to VAT

In more serious VAT news, it’s worth noting that social and political pressure can result in changes to the VAT system. Notably, in 2021, the 5% VAT rate on women’s sanitary products – the so-called ‘tampon tax’ was scrapped. More recently, on 1st January 2024, the government also abolished VAT on period pants.

Now the Society of Radiographers is pushing for bras to become VAT free. Radiographers argue that poorly fitting bras can lead to women developing musculoskeletal problems. For this reason, they believe that charging VAT on bras could be discriminatory under the terms of the Equality Act 2010.

Certainly, it makes sense to take essential items out of VAT. That’s why food and children’s clothes are rated at 0%. But there’s no denying there are some strange VAT rules. For example, you pay 20% VAT on toilet roll, but 0% on caviar. That’s if you’re lucky enough to be able to afford caviar!

VAT news and you

As you’ve seen from this VAT news roundup, the rules relating to the tax change often. Government can change the amount of VAT charged on certain items. It can also change the threshold at which businesses have to register. At the same time, HMRC keep a keen eye out for businesses that it thinks are paying the wrong amounts of VAT. This can lead to disputes about whether certain products are VAT rated or not. Finally, social pressure and campaigns can lead to some products being de-listed.

Keep up to date with VAT news isn’t easy! However, if you would like any advice on VAT for your business, be sure to get in touch. Our friendly, expert accountants would be delighted to help you.