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VATease - Newsflash, VAT Changes in 2006 Budget

The VAT changes in the 2006 Budget contain several measures to combat VAT avoidance and fraud, the usual administrative changes and a number of measures that the Chancellor has already announced.

VAT Registration and Deregistration Limits

  • Registration threshold raised to £61,000.
  • Deregistration threshold raised to £59,000.
  • With effect from 1 April 2006.

Forced Online Submission of VAT Returns

  • HMRC have announced their intention to require businesses to file VAT returns, P45s, P46s and company tax returns online.
  • This will be implemented in stages from April 2008.
  • The smallest businesses will be the last to be forced to use online submission in 2012.

Fuel Scale Charge

  • Fuel Scale Charges have been increased again this year.
  • VAT due per 3 month VAT return for a non-diesel car will now be £40.66 for a car under 1400cc, £51.53 for a car up to 2000cc and £75.66 for cars over 2000cc.
  • VAT due per 3 month VAT return for a diesel car will now be £38.72 for a car under 2000cc and £49.30 for cars over 2000cc.
  • Other figures available from VATease.
  • Effective from the first VAT return starting on or after 1 May 2006.
  • Subject to a derogation from the EC, from 1 May 2007 fuel scale charges will be tied to carbon emissions.

Bad Debt Relief

The Govt. has carried out an informal consultation on simplifying changes to the Bad Debt Relief scheme. However, it did not identify any changes that would be easy to operate without significant risks of fraud. There will therefore be no changes at this time.

Partial Exemption

  • Businesses wishing to agree a Partial Exemption Special Method will be required to make a declaration that the proposed method produces a "fair and reasonable" result.
  • Methods later found not to be fair and reasonable could be withdrawn retrospectively and overclaimed VAT clawed back.
  • HMRC state will allow easier agreement of special methods.
  • Simpler methods to be introduced for partly exempt businesses making overseas supplies.
  • Consultation will be held on both measures.
  • Change will be made prior to and come into effect from April 2007.

Auctioneers Fees

  • Auctioneers fees will be subject to VAT at 17.5% even if goods being sold are in the UK under temporary import rules.
    • Legislation is being introduced following an ECJ ruling (as reported in our March Newsletter).

Reduced Rate on Contraceptives

Other than perennial adjustments such as the Registration Threshold and Fuel Scale Charges, the only provision that was correctly widely predicted was the reduction of VAT on contraceptives.

  • VAT on contraceptives reduced to 5%.
  • Lowest rate allowed under EU laws.
  • Prescribed contraceptives will still be zero-rated.
  • Contraceptives that are fitted, injected or implanted by a health professional will still be part of a VAT exempt supply of medical care.
  • Fertility monitoring devices and products used for natural family planning are unaffected.
  • Subject to Parliamentary approval, effective 1 July 2006.

Supplies of Goods under Finance Agreements

A recent High Court decision created a loophole where, if goods supplied under a finance agreement were returned to a finance company, the finance company could both reduce the VAT on the original sale and not declare VAT on the second sale. Legislation will be amended to close this loophole for agreements entered into from 13 April 2006.

Changes to Property Rules

The Budget was used to, once again, announce that changes are to be made to rules governing the taxation of property. However, little additional information has been given beyond that provided in the last Pre-Budget Report, except an idea of the timeframe for the introduction of legislation.

Listed Places of Worship and Memorials

The Chancellor has extended the grant scheme that refunds the VAT incurred on eligible repairs to listed places of worship and memorials. It will no run to the tax year 2010 - 2011. The scope of the scheme has been extended slightly also.

Gambling

  • The Government will continue the scheme allowing racehorse owners to register for VAT and reclaim VAT on the costs of running horses.
  • Full details of the taxation of amusement machines, including fixed odds betting machines, have been released.
  • This completes measures started in the Pre Budget Report to align the VAT and Duty treatment of these machines.
  • Full details are available from VATease.

Missing Trader ("MTIC") Fraud

The Chancellor has introduced a number of measures to try to reduce the level of MITC fraud.

  • New legislation allowing HMRC to direct individual businesses to keep additional records relating to trading in goods that are commonly used to perpetrate fraud. Examples given include forcing mobile phone brokers to record individual IMEI numbers.
  • Clarifying in legislation HMRC's powers to mark goods they inspect at ports of dispatch. This will help identify goods that are repeatedly dispatched or exported to and acquired or imported from other countries.
  • Trumpeting (once again) the proposal they have made to the European Commission for a reverse charge scheme to be applied to such goods. If the EC agrees this would require the purchaser to account for the output VAT on these goods instead of the seller. This cannot be introduced unless and until it has been agreed by all EC Member States.
  • Reverse charge scheme legislation may be put in place awaiting approval from EC.

Phone Cards and other Face Value Vouchers

Further provisions to reduce VAT avoidance schemes are targeted at schemes using "credit vouchers" and phone cards.

Credit Vouchers

  • Credit vouchers (including some phone cards) are ones issued by one party and redeemed by another. Ostensibly these are not subject to VAT when issued.
  • VAT should be declared when the vouchers are redeemed. Existing legislation makes the issue subject to VAT where the redemption will not be.
  • New rules will allow the Govt. to easily introduce additional rules determining when the issue of credit vouchers are subject to VAT.

Phone Cards

  • Ambiguous wording in the Place of Supply of Services Order will be clarified to close a loophole exploited by VAT avoidance schemes involving phone cards.
  • No further details on changes have been released at this time.

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

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This newsletter is designed to keep readers abreast of current developments. No liability is accepted for errors, omissions or opinions it contains or for any reliance placed on this newsletter. This newsletter is intended for general guidance only. No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the authors or publishers. On any specific matter, reference should be made to the appropriate advisor.

© Copyright 2006 VATease Ltd. VATease actively encourages you to copy, distribute and display this newsletter for both commercial and non-commercial purposes. However, it must be clearly attributed to VATease Ltd and must not be altered, transformed, or built upon (including this paragraph) without the express permission of VATease.

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