BUDGET 2010 - VAT changes

As ever, the Budget didn’t appear too interesting in terms of VAT changes. Indeed I came across a headline indicating that there would be no changes to VAT.


Look a bit further though, and there were quite a few changes, although admittedly nothing to get anybody terribly worked up about.

• VAT registration limit goes up to £70,000 from 1 April 2010 and the Fuel Scale Charge rates have been increased again, for VAT periods starting on or after 1 May 2010.


• Zero rating will no longer be available for aircraft on the basis of weight. From 1 September 2010, aircraft (and spares/repairs) will only be zero rated where used by airlines “operating for reward chiefly on international routes”.


• ‘Place of supply’ of gas, heat and cooling will change from 1/1/2011. The detail is a bit tedious, but if you want to know all about it please ask.


• Certain postal services provided by Royal Mail will become liable to VAT from 31/1/2011, chiefly in the realms of parcel deliveries. ‘Domestic mail’ remains exempt.


• From 1/11/2010, a reverse charge will be introduced to combat ‘Missing Trader’ fraud by certain miscreants buying or selling emissions allowances. If you’re doing it, you know who you are..


• From 1/1/2011, the rules surrounding the use of the “Lennartz” procedure are changing, such that businesses hoping to utilise it (or who have already) will be adversely affected. In essence, the Lennartz treatment allows a business to reclaim VAT in full on an asset that has both business and private use, at the time of purchase. Then, as time progresses, any private use is subject to output VAT, as and when it takes place. HMRC have never liked it, but as it emanated from a European Court ruling, they have been obliged to allow it. They are now restricting it somewhat, and also making certain aspects of it retrospective. I just love the following phrase: “ The legislation will ensure that this position is treated as having always had effect.”  A quick Google on the words “retrospective taxation” suggests that this might be in breach of Article 1 of Protocol No.1 to the ECHR. Further digging, however, suggests that this topic is well beyond the scope of this blog, and I don’t intend to get into legal argument on this point – I’ll leave this to those better equipped to consider the matter.

Like I said, nothing too dramatic, but if you require further information about any of the items, please let me know.

http://www.davebrownvat.com

VAT - partial exemption changes

HMRC have announced changes to the basic partial exemption rules, most of which will have a beneficial effect on businesses afflicted by this concept. Affected businesses are those that have exempt income as well as taxable income, and who are obliged to disallow a certain amount of VAT on expenditure. In simple terms, those changes are:

• Instead of doing a quarterly calculation, based on that quarter’s figures, the business can utilise the previous year’s annual average and apply it to this year’s figures. An annual adjustment is then carried out at the year end, and that percentage is used for the next 12 months.
• Presently, when the obligatory annual adjustment is carried out, the resulting VAT adjustment has to be made on the next VAT return of the new year. HMRC are now proposing that the business can make the adjustment in the last VAT return of the previous year instead.
• A potential ‘use – based’ method can be utilised for new businesses, where the normal trading pattern has not yet established itself. Thus the first year, with heavy expenditure, might otherwise fall to have a very low VAT recovery rate.

The above three measures are voluntary and the decision whether or not to adopt them will very much depend on individual circumstances.

The fourth change is compulsory, but as it is specific to the following types of supplies I will not bore everyone else with the detail:

• supplies of services to customers outside the UK
• certain financial supplies such as shares and bonds
• supplies made from establishments located outside the UK

If you consider that you may be affected by any of the above, please ask for further details.

NB: although the changes are effective from 1/4/09, the fine print points out that this means VAT returns commencing on or after 1 April 2009.

www.davebrownvat.co.uk