2008 Budget VAT Notices Part 2

VAT: REDUCED RATE FOR SMOKING CESSATION PRODUCTS

Who is likely to be affected?
1. Suppliers and consumers of smoking cessation products.
General description of the measure
2. Secondary legislation will be introduced to ensure that the reduced Value Added Tax (VAT) rate of 5 per cent for ‘over the counter’ sales of pharmaceutical smoking cessation products will continue to have effect.
3. Smoking cessation products that are dispensed on a prescription will remain zero-rated.
Operative date
4. This measure will have effect on and after 1 July 2008.
Current law and proposed revisions
5. Smoking cessation products dispensed by a pharmacist on the basis of a prescription of a medical practitioner are already zero-rated by the VAT Act 1994. This measure will not affect smoking cessation products supplied in these circumstances.
6. The reduced rate of 5 per cent has effect for all other supplies of pharmaceutical smoking cessation products, including supplies made over the internet. This includes all non-prescribed sales of patches, gums, inhalators and other pharmaceutical products held out for sale for the primary purpose of helping people to quit smoking.
7. To coincide with the smoking ban in England, the VAT (Reduced Rate) Order 2007 (SI 2007/1601) introduced Group 11 of Schedule 7A to the Value Added Tax Act 1994. The Order specified that this reduced rate was to have effect in relation to supplies of smoking cessation products made on or after 1 July 2007 but before 1 July 2008. Secondary legislation will be laid before Parliament to extend the reduced rate beyond 30 June 2008.


VAT: TRANSITIONAL PERIOD FOR CLAIMS

Who is likely to be affected?
1. Businesses registered for VAT between 1 April 1973 and 1 May 1997 who either declared more output VAT than they were liable for, or claimed less input VAT than entitled to.
General description of the measure
2. Legislation will be introduced in Finance Bill 2008 to provide a transitional period to 31 March 2009, during which eligible businesses can make VAT claims for rights that accrued before the introduction in 1996 and 1997 of the three-year time limit for claims.
3. The legislation will also correspondingly amend the powers of assessment of HM Revenue & Customs (HMRC) to ensure that assessments may be made to recover any amounts paid, which are subsequently found to have been incorrectly claimed by business.
Operative date
4. The transitional period will run to 31 March 2009.
Current law and proposed revisions
Regulation 29(1A) of the Value Added Tax Regulations 1995
5. Regulation 29(1A) provides that no claim for input tax can be made more than three years after the due date of the return, for the accounting period in which the input tax was incurred.
6. In January 2008, the House of Lords held in its judgments in Michael Fleming (trading as Bodycraft) and Condé Nast Publications Ltd that, because there was no transitional period when the three-year cap was first introduced, the three-year time limit does not have effect for any right to claim input tax that accrued before it was enacted on 1 May 1997 until an adequate transitional period has been provided.
7. This measure will give effect to the judgment of the House of Lords by providing a transitional period during which claims for input tax can be made, for accounting periods ending between 1 April 1973 and 1 May 1997, before they become subject to the three-year time limit.
Section 80(4) of the Value Added Tax Act 1994
8. Section 80 provides that where a person accounts for more output VAT than is due, they can claim it back from HMRC. Section 80(4) provides that HMRC are not liable to pay any claim made more than three years after the end of the accounting period to which it relates.
9. HMRC considers that the House of Lords’ judgments in Michael Fleming (trading as Bodycraft) and Condé Nast Publications Ltd also apply to rights to claim overpaid output tax that accrued before the three-year time limit was enacted on 4 December 1996 until an adequate transitional period has been provided.
10. This measure will provide a transitional period during which claims for overdeclared output tax can be made, for accounting periods ending between 1 April 1973 and 4 December 1996, before they become subject to the three-year time limit.
Section 80(4A) of the Value Added Tax Act 1994
11. Assessments to recover amounts incorrectly paid by HMRC to businesses who claim under section 80 must be made within two years of HMRC having acquired evidence of facts, sufficient to justify the making of the assessment.
12. This measure will add a two-year time limit from the end of the accounting period in which an erroneous payment is made. This will ensure that HMRC are able recover amounts paid out where it is later discovered repayment was mistaken.
13. This will also bring these assessment time limits into line with those for HMRC’s other VAT assessment powers.
Section 73(2) of the Value Added Tax Act 1994
14. Assessments to recover amounts incorrectly paid by HMRC to businesses on input tax claims must be made within two years of the end of the accounting period in which the claim is made.
15. This measure will amend the time limit, so that it runs from the end of the accounting period in which the claim was paid, ensuring that HMRC will be able to recover any amounts incorrectly paid.



VAT: OPTION TO TAX LAND & BUILDINGS

Who is likely to be affected?
1. Anyone who makes supplies of land and / or buildings.
General description of the measure
2. This measure will simplify the legislation relating to the option to tax land and/or buildings. It will also introduce minor changes to enable taxpayers to revoke an option to tax after 20 years and make a number of associated hanges to improve practical administration of the option to tax.
Operative date
3. The rewritten legislation will have effect on and after 1 June 2008. The earliest date an option to tax will be revocable will be 1 August 2009.
Current law and proposed revisions
4. The law relating to the option to tax land and buildings for VAT is contained in Schedule 10 to the VAT Act 1994.
5. A Treasury Order will be laid after Budget 2008 to insert a revised Schedule 10 into the VAT Act and make certain consequential changes to other VAT legislation, including new appeal rights. This will be accompanied by a public notice having the force of law.
6 A number of associated changes to improve practical administration of the option to tax and its revocation will be included in the legislation. These deal with:
• opted properties held in a VAT group;
• opted buildings acquired for use as dwellings or relevant residential purpose and bare land acquired for construction of building for such purposes;
• the introduction of a new option to simplify the option to tax process for taxpayers with a number of properties;
• early revocation of an option to tax within a “cooling-off” period;
• the automatic lapse of an option to tax six years after the taxpayer ceased to have any interest in a property that they had previously opted to tax;
• the ability, in certain circumstances, to exclude a new building from a previous option to tax; and
• late applications for permission to opt to tax