After much talk of VAT breaks for property developers there were surprisingly few relevant changes in the budget. In fact, many of the changes introduced to VAT are ones that are a result of overall EU VAT legislation changes, or one that have already been outlined in the pre budget report. The perennial favourites of increases in the registration threshold and fuel scale charges have occured.

Outlined below are the main changes.

VAT Registration and Deregistration Thresholds

The threshold has increased by a £1,000 per threshold with effect from 1 May 2009.  The thresholds will be:

• VAT registration £68,000
• VAT deregistration threshold £66,000. 
• Acquisition tax registration threshold has increased to £68,000.
  

Fuel Scale Charges

The fuel scale charges used to tax private use of road fuel have been changed to reflect changes in road fuel cost.

VAT Change of Standard rate

It has been confirmed that the standard rate will revert to 17.5% with effect from 1 January 2010. Legislation has also been introduced to block the artificial creation of a tax point at 15% for supplies that will be liable to 17.5% after the VAT rate reverts back to the higher amount in 2010. 

This legislation is aimed at blocking the types of VAT mitigation schemes previously used by entities that had a restricted level of VAT recovery when the rate changed in 1991 from 15% to 17.5%.  Such entities would benefit from a reduced amount of irrecoverable VAT where supplies were acquired at the 15% VAT rate rather than 17.5% VAT rate.

Reduced Rate of VAT for Child Car Seat Bases

Car seat bases have been brought into the scope of the 5% reduced rate of VAT.

VAT Exemption for Gaming Participation fees

Following extensive lobbying from the Gaming Industry VAT has been removed from participation fees for playing bingo and other games of chance.  However, the benefit of this to the industry has been offset by an increase on bingo duty to 22%.  There have also been some other more minor changes to bingo duty. Please call your usual contact for further information.

Simplification of the option to Tax

In some circumstances businesses may opt to treat income from commercial properties as VATable in order to protect input VAT recovery on costs associated with the property. Rule changes have been introduced that take effect from 1 May 2009 for any businesses that wish to opt to tax a property previously used to make VAT exempt supplies. Where a business has received VAT exempt rental income it requires HMRC’s permission before it can opt to tax. In some circumstances this permission is automatically granted. The new simplified automatic option to tax procedures include a new two part output VAT and inputs VAT check to be applied in order to establish if automatic permission to opt to tax applies.

Clients with properties that are not yet opted to tax where the client has or will incur input VAT in relation to the property should seek advice regarding if opting to tax will be beneficial to the business

HMRC also had two extra statutory concessions that allowed:

• Businesses that were not VAT registered to register and claim VAT on construction costs relating to the property that were incurred over six months pre registration
• And recovery of VAT incurred prior to an option to tax in relation to land and buildings falling outside the scope of the Capital Goods Scheme (CGS).

These concessions will be withdrawn from 1 May 2010. Businesses that require use of the above concessions are advised to call their usual contact.

EC VAT Changes

Cross Border Supplies - VAT Changes 2010

The place of supply and time of supply for cross border supplies will change with effect from 1 January 2010. The main changes are:

• The basic rule that the place of supply is where the supplier is based for business to business supplies will change to being where the customer is based.
• The tax point rules for continuous supplies of services will change as a tax point will occur on 31 December each year for any services not billed or paid beforehand.
• Businesses making supplies of services to other member states where the place of supply is the customer’s country will be required to complete EC Sales lists.

We will have more details available of the changes later in the year.  However, if clients are involved in high levels of cross border supplies of services it would be better for them to take advice as soon as possible. This is in order to ensure that their accounting systems can cope with the changes.

Refund of VAT Incurred in Other EC Countries

Currently claims for VAT incurred in other member states must be submitted in writing to the tax authority in the member state where the cost was incurred. This system is being modernised so that claims will be made electronically by UK tax payers to HMRC and the deadline for making the claim will be nine months instead of six months. Other changes will also occur and the new system will come in with effect from January 2010.

We will have further details available on our website nearer the time.

Changes Aimed at Encouraging Compliance

Named and Shamed

HMRC will be publishing the names and details of Taxpayers on a quarterly basis where the tax payer has:

• Understated any Tax due, or
• s penalised for a failure to notify HMRC when required to do so, or
• is penalised for deliberate VAT or excise wrong doings

This only applied where a loss of £25,000 or more tax results.  Details will not be published if the tax payer has submitted a voluntary disclosure.  This change opens up the possibility that taxpayers that make a genuine error on a one off high value transaction such as a property sale could find their names and details being published by HMRC. 

It is essential that correct advice is taken before such transactions occur to prevent the possibility of unwelcome adverse publicity for clients.

Customs Right To Check Movements of Goods

In order to stop and check a movement of goods between member states HMRC are required to have reasonable grounds for believing that a movement is not between member states before stopping and checking any particular movement. New powers are being introduced that allow HMRC to check all movements and undertake selective and proportionate checks to collect or enforce customs duties or enforce any import prohibition or restriction.

New Penalty Regime

Finally, don’t forget that the new penalty regime came in with effect from 1 April 2009. If you require further details please call your usual contact.

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