Budget VAT changes

There were no major surprises in respect of VAT issues in the Chancellor's Budget speech of 12 March 2008. The main changes are as follows:


REGISTRATION LIMIT

The VAT registration threshold rises from £64,000 to £67,000 from 1 April 2008.
The turnover limit for deregistration will be increased from £62,000 to £65,000.



VAT RETURNS - CORRECTION OF ERRORS

From 1 July 2008 the £2,000 limit below which errors may be corrected on the VAT return for the period in which the errors are discovered will be increased to the greater of:

i) £10,000, or
ii) 1 per cent of turnover, subject to an upper limit of £50,000.

Similar rules will apply to corrections of returns of insurance premium tax (IPT), air passenger duty (APD), landfill tax (LFT), climate change levy (CCL) and aggregates levy (AGL).

This change will benefit many taxpayers by allowing correction of sizeable errors without bringing them to the attention of HMRC and, thereby, by avoiding an interest charge.



FUEL SCALE CHARGES

The fuel scale charges will increase from the start of the next VAT accounting period beginning on or after 1 May 2008. The rises will be substantial. For example, for a car with CO2 emissions over 235g/Km the quarterly VAT charge will be £71.94, compared with £63.45 above the current maximum of 240g/Km.



REDUCED RATE FOR SMOKING CESSATION PRODUCTS

This merely continues the existing temporary relief and is intended to extend support for those trying to stop smoking. The Chancellor announced that the reduced VAT rate of 5 per cent for ‘over the counter’ sales of pharmaceutical smoking cessation products will continue to have effect from 1 July 2008. This was due to expire on 30 June.



TRANSITIONAL PERIOD FOR CLAIMS

This announcement effectively gives effect to the judgments of the House of Lords in the recent case of Fleming (trading as Bodycraft) and Condé Nast Publications Ltd.

This affects 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.

The Finance Bill 2008 will provide a transitional period to 31 March 2009, during which businesses can make claims for overpayments (or further re-claims) of VAT accrued before the introduction of the three-year cap on 1 May 1997. Claims will be considered for the period 1 April 1973 to 1 May 1997.



VAT EXEMPTION FOR FUND MANAGEMENT

Group 5 of Schedule 9 to the VAT Act 1994 will be amended from 1 October 2008 to delete trust-based schemes and add closed-ended investment entities, which invest in securities and whose shares are included in the UK Listing Authority main Official List and funds established outside the UK, which are recognised overseas schemes under the Financial Services & Markets Act 2000.



OPTION TO TAX

The law will be changes to simplify the rules for the option to tax land and property from 1 June 2008. The earliest date an option to tax will be revocable will be 1 August 2009.

There will also be a number of associated changes to improve practical administration of the option to tax and its revocation, including:

• 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.



WITHDRAWAL OF STAFF HIRE CONCESSION

There is currently a concessionary arrangement whereby employment businesses are allowed to exclude the wages element from the value of supplies of temporary workers, and to account for VAT solely on their margin. This concession will be withdrawn with effect from 1 April 2009.