VAT Newsletter - VAT Changes in UK Budget 2004

It appears that this year's budget will have a more profound affect on the tax gatherers than the taxpayers with the merging of Inland Revenue and HM Customs & Excise and the combined loss of 14,000 jobs.

Small Businesses

Anti-avoidance

Disclosure Rules

• Businesses with a turnover exceeding £600,000 must disclose the use of any VAT avoidance schemes on a list to be published by HM C&E.
• Failure to disclose will incur a penalty of 15% of the tax avoided.
• Businesses with a turnover exceeding £10 million must disclose the use of any scheme that has "certain of the hallmarks of avoidance".
• Advisers marketing schemes with "hallmarks of avoidance" can voluntarily register them with HM Customs & Excise. Businesses using a registered scheme need not make a disclosure.
• Failure to disclose will incur a £5,000 penalty.
• VATease Comment
  • In theory, any scheme in a list published by HM Customs & Excise must "work".
  • The published list may become a shopping list of working avoidance schemes for any interested taxpayer.

Eligibility rules for VAT groups

• To counter specific avoidance schemes two new tests are being added to determine eligibility to join a VAT group. It will prevent grouping where:
  • a company jointly owned with or wholly owned by a third party makes taxable supplies to a group member and
  • the VAT group would be unable to claim all the VAT on such supplies.

Valuation of use by employees of demonstrator cars

• Where motor dealers allow employees to use demonstrator cars for private use, HM Customs & Excise will be able to direct that VAT is accounted for on the open market value.
• HM Customs & Excise need a derogation from the EC before implementation.

Commercial Buildings

• Legislation will be introduced to combat 2 specific anti-avoidance schemes that use the TOGC rules to transfer a leased building into a partly exempt company.
• It will only effect transactions that would otherwise have been caught by the option to tax disapplication.

General Provision

Fuel Scale Charges

• Fuel scale charges have been decreased this year.
• VAT due per quarter for a petrol car will now be £34.55 for a car under 1400cc, £43.63 for a car up to 2000cc and £64.34 for cars over 2000cc.
• Other figures available from VATease.
• Effective from first VAT return starting on or after 1 May 2004.

Place of supply of natural gas and electricity

• The supply of natural gas and electricity will become a reverse charge service.
• VAT must be accounted for in the country where the recipient belongs.
• If the recipient is a VAT-registered business and the supplier is in a different country, the recipient will account for the VAT.
• Natural Gas and electricity to be zero-rated when imported from outside EC.

Energy Saving Materials

• Ground source heat pumps are to be added to the list of materials eligible for the reduced rate of VAT (5%) when installed.

Option to Tax

• HM Customs & Excise have started a consultation on the possible disapplication of the Option to Tax on buildings to be used for relevant residential or relevant charitable purposes.

Churches

• The Chancellor has increased the amount of VAT that churches can reclaim on repair expenditure as a grant from the Department of Culture, Media and Sport from 12.5% to 17.5%.