Value added tax

• New registration and deregistration thresholds
• Changes to the standard rate of VAT
• Changes to fuel scale charges
• Further simplification of the option to tax
• Bingo and other games of chance - scope of VAT exemption widened
• 5% rate to apply to children's car seat bases
• Cross-border VAT changes from 2010

New registration and deregistration thresholds

From 1 May 2009, the registration threshold will be increased from £67,000 to £68,000, and the de-registration threshold from £65,000 to £66,000. The threshold for registration and de-registration in respect of intra-community acquisitions is also increased to £68,000.

This means that from 1 May 2009, an un-registered business must notify its requirement to register if taxable turnover in the last 12 months has exceeded £68,000 or it expects taxable turnover in the next 30 days to exceed that figure. However, the business will not have to register if it can demonstrate to HM Revenue and Customs that taxable turnover in the next 12 months will not exceed £66,000.

From the relevant date, de-registration can be applied for if annual taxable turnover falls below £66,000.

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Changes to the standard rate of VAT

When the standard rate reduction from 17.5% to 15% was announced from 1 December 2008, it was stressed that it would only be for a 13-month period and the higher rate would return from 1 January 2010. This has now been confirmed, along with minor adjustments to legislation giving HM Revenue and Customs powers to bring in rate adjustments for periods of less than a year.

The return to 17.5% will create significant risks of artificial schemes by those unable to reclaim all of their input tax so as to ensure VAT is only due at 15%. Consequently, targeted legislation will be introduced in the Finance Bill 2009 to guard against this. The anti-avoidance measures will allow for an additional 2.5% to be payable where relevant goods or services have invoiced with 15% VAT but in reality the goods or services are to be supplied on or after 1 January 2010. The extra 2.5% will be due on the date the rate increases: in this case, on 1 January 2010.

The scope of the legislation was announced by the Financial Secretary to the Treasury in two Written Ministerial Statements of 25 November 2008 and 31 March 2009 and the two sets of circumstances requiring action have effect on or after those dates respectively. They are as follows:

1. Forestalling works by the supplier - i.e. the supplier issues an invoice before the rate rise although goods are not due to be delivered or services performed until after the change. The additional VAT (on 1 January 2010 this would be 2.5%) will be due on the supply or on the grant of a right to receive goods or services. In order to ensure the measure only affects artificial situations, one of the following must apply:
   • a. The recipient must not be able to claim all its input tax
   • b. The supplier and customer are connected
   • c. The supplier funds the purchase (or grant of a right), or
   • d. The supplier issues a VAT invoice where payment is not due for at least 6 months.
2. An additional charge will also apply where a pre-payment in excess of £100,000 is made and the supply or grant of a right will not be until after the rate rise. It should be noted that the charge will not apply where such a prepayment represents normal commercial practice when a rate rise is not expected

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Changes to fuel scale charges

In time-honoured fashion, fuel scale charges, payable where vehicles are used partly for non-business purposes, have been changed to reflect fluctuations in fuel prices, and will apply from tax periods starting on or after 1 May 2009.

It should be remembered that the amounts published are VAT-inclusive at the standard rate. Therefore, whilst the standard rate is 15% (until 31 December 2009), the relevant figure should be multiplied by 3/23 to obtain the VAT element. Thereafter, once the rate returns to 17.5%, the fraction is 7/47.

The new charges are based on the CO₂ emissions of vehicles and given for one month, quarterly and annual VAT returns. Sometimes, the CO₂ emissions figure will not be a multiple of 5. Where that is the case, the actual figure is rounded down to the next multiple of 5 in the table. Also these days, there is an increasing number of vehicles that can run on two types of fuel. These will have two CO₂ emissions figures and the lower figure should be used for scale charge purposes. Finally, HMRC have prescribed a level of emissions by reference to a vehicle's engine capacity (cc) where it is too old to have an official CO₂ emissions level.

The tables of new charges are in Budget Notice 69.

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Further simplification of the option to tax

It has always been difficult to understand compliance procedures required when a person or business wishes to opt to tax land or buildings and has previously received exempt income from the same. A new measure aims to simplify this.

Currently, prior written authorisation from HM Revenue and Customs is needed where land or buildings have been used to generate exempt income, unless one of 4 automatic permission conditions ('APCs') have been met. In other words, taxpayers currently need to write to HM Revenue and Customs proposing how much input tax on costs incurred prior to the option should be recoverable. Thereafter, once HM Revenue and Customs has confirmed in writing that the proposed amount is fair and reasonable, the person opting then has to write again actually confirming the option. This frustrating and time-consuming process is avoided if one of the APCs applies.

Encouragingly for taxpayers, a new APC will be introduced from 1 May 2009, which will enable more of them to opt without prior permission from HM Revenue and Customs. Current informal concessions will continue until 30 April 2010 but from then, only one of them will continue in part whilst that area of law is reviewed. The remainder will be withdrawn.

Further details will be available from HM Revenue and Customs shortly.

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Bingo and other games of chance - scope of VAT exemption widened

Over the years, there has been a lot of confusion as to when participation fees for bingo and other games of chance are exempt. In particular, Note 1(b) of Group 4 of Schedule 9 (the exemption for betting, gaming and lotteries) explains that the granting of a right to take part in a game of chance for a prize is subject to the standard rate of VAT, apart from a few exceptions.

From 27 April 2009, Note 1(b) will be removed from the legislation thus also removing the confusion and ensuring that all participation fees for bingo and other games of chance will be exempt from VAT.

That may be welcome news in that suppliers will no longer have to account for output tax on relevant receipts. However, it will also affect their partial exemption status in that more input tax from two sources will become irrecoverable, i.e:

• Input tax on positive rated costs directly attributable to the participation fees, which are now exempt, and
• On the assumption the business has some taxable income and is VAT-registered, a greater proportion of the VAT on non-attributable costs such as overheads.

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5% rate to apply to children's car seat bases

One of those all too common quirks of VAT has been removed in the Budget. Currently, children's car seats are subject to 5% VAT, whereas their bases are subject to the standard rate (currently 15%).

From 1 July 2009, the lower rate will apply to the combination of a safety seat and a related wheeled framework, booster seats and booster cushions. For once, common sense prevails.

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Cross-border VAT changes from 2010

The most detailed changes proposed in this year's Budget will not actually come into effect for more than 8 months. For some time, there has been consultation concerning cross-border supplies of goods and services; how they can be simplified and how potential fraud can be better monitored. A series of provisions, announced over four Budget Notices (74-77) address these issues and clarifies the changes due from 1 January 2010.

Place of supply of services

The objective of these changes is to ensure that wherever possible VAT will be payable in the country in which the service is consumed i.e. where the customer is established. Therefore, UK businesses will have to account for VAT via the reverse charge mechanism on most services received from overseas suppliers. In this case, the changes will be phased in on 1 January 2010, 2011 and 2013 respectively.

Even though a number of services are taxed via the reverse charge mechanism, the basic rule for business to business transactions is that the supply takes place where the supplier belongs. This will change to where the customer belongs from 1 January 2010. Arguably, the most significant changes to current practice will affect cultural, artistic, sporting, scientific services, valuation and work on goods etc, which are currently supplied where performed. From 1 January 2010, valuation and work on goods will be taxed where the customer belongs and the other services in this group will change to the new rule from 1 January 2011, except for admission charges, which will remain as now. Notably, the place of supply of services relating to land will remain as now i.e. where the land is situated. Further details are available in BN 74.

Time of supply rules

From 1 January 2010, there will be a change to the tax point for UK businesses buying in services from overseas. VAT is currently due when the services are paid for. However, from that date, the time of supply will be when a service is 'performed', distinction being made between single and continuous supplies of services. Single supplies are performed when completed or when paid for, whichever is the earlier. The tax point for continuous supplies will be the month end of each billing or payment period, but again the earlier receipt of an actual payment will override the end of the billing or payment period. The tax point for continuous supplies not subject to billing or payment periods will be 31 December, or earlier if an actual payment is made.

EC sales lists

From 1 January 2010, UK businesses supplying services to customers belonging overseas and who are required to account for VAT in their country via the reverse charge mechanism, must include such services on their EC Sales Lists, currently only applicable to intra-community supplies of goods. The entry would show the customer's VAT registration number and the VAT-exclusive amount of supplies to that customer in the period.

Later this year, legislation will be introduced enabling HM Revenue and Customs to meet obligations to exchange information with their counterpart authorities in other Member States. That will mean businesses will only have 14 days (paper version) or 21 days (electronic) to file ECSLs rather than the current six weeks because HM Revenue and Customs will have to exchange information within one month. Also, HMRC may require monthly ECSLs where values exceed £70,000.

Refunds of VAT incurred in other member states

The final changes in this category affect refunds of foreign VAT. Paper claims to overseas authorities will go and be replaced by electronic claims to the VAT authorities in the country in which the claimant is established e.g. UK business will file an electronic claim to HM Revenue and Customs. The other changes are:

• The deadline for claims will be increased from 6 to 9 months after the year end to which the claim relates
• Claims will have to be paid within 4 months instead of 6 and even if there are queries, the maximum will be 8 months
• The Member State of Refund will pay interest in cases where the business meets all its obligations but deadlines are not met by the tax authorities; and
• All EU Member States will be required to afford a right of appeal against non-payment in accordance with the procedures of the Member State of Refund.

All these changes appear welcome, and at least claimants will no longer require knowledge of all the languages of the countries in which they are claiming for form-filling purposes.

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