VATease VAT Newsflash 2005 Pre-Budget Report

The Pre Budget Report sees few actual changes to VAT for the vast majority of businesses. There are 2 new consultations announced, proposed changes to the Option to Tax rules, good news for insurance companies and changes that will affect bookmakers and amusement arcades.

Re-write of VAT Property Law

A consultation is to be undertaken on the re-write of Schedule 10 to the VAT Act. Schedule 10 covers the taxation of, exemption from taxation of, Election to Waive Exemption on and anti-avoidance rules about land and property.

The consultation document includes the proposed re-drafted Schedule 10 and can be obtained from HM Revenue & Customs' website (http://www.hmrc.gov.uk/). The Business Brief issued states that the intention is to keep the basic taxation rules the same but make the legislation easier to understand. The effect on most businesses should be minimal if anything.

Beneficial Ownership of Property

A further consultation is to be undertaken before legislation is amended regarding the taxation of beneficial ownership of property. This is a very specific area of taxation and will not affect the majority of businesses.

Changes to the Election to Waive Exemption

Following on from a consultation announced in last year's Pre-Budget Report, HMRC have announced proposed changes to the rules governing the Election to Waive Exemption, commonly referred to as the Option to Tax. The changes set out the conditions under which businesses will be able to revoke an option to tax after 20 years, changes to Global Options previously available and a proposed new Universal Option. There will also be further administrative changes regarding extensions, linked buildings, options on bare land and options on buildings that are demolished.

Insurance related services

The Government is to delay making any changes to UK VAT legislation following the ECJ judgment in the Arthur Andersen case pending the results of a review about to be undertaken by the European Commission. This will be of great relief to insurance companies and their outsource services providers.

Fixed Odds Betting Terminals & s16/s21 machines

As predicted in VATease's November Newsletter, the Chancellor has made income from Fixed Odds Betting Terminals, which have become common in betting shops, subject to VAT. The legislation has been drafted however so that it shouldn't affect Touch Bet Terminals that are available in casinos because these allow bets on a "real event". Income s16/s21 machines, which have escaped taxation under the old definition of gaming machines, will also become subject to VAT at 17.5%. These changes take affect from 6 December 2005.

FOBTs are typically seen in bookmakers' premises and s16/s21 machines in amusement arcades. These types of businesses will be the ones affected by the change.

VAT Losses

The PBR also saw the release of estimates of the amount of VAT revenue loss in recent years. The estimates show the gap between the estimate of how much VAT should be collected and the amount actually collect has dropped from £12.8bn (16.8%) to £11.3bn (13.5%). Missing Trader (mobile phone) fraud is estimated to contribute between £1.12bn and £1.90bn to the lost revenue. This is down from peak of up to £2.53bn in 2001-02.

Reduction of administrative burden on business

The Chancellor referred in his speech to measures to reduce the burden placed on businesses by the administration of tax. However there were no specific measures detailed in any of the attending documentation.

If you require further information please contact us on 0121 778 4299.

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