There were few surprises again on the VAT front. The registration threshold rises to £64,000 from 1 April 2007 and the threshold for deregistration will rise to £62,000.
In line with other ‘green’ car provisions, the VAT fuel scale charges, designed to recoup Input Tax on fuel used for private motoring, are to move from a charge based simply on engine size to carbon dioxide emissions. The new scale tables come into effect for VAT accounting periods beginning on or after 1 May 2007, effectively the May return for those submitting monthly returns, and July 2007 quarterly returns. Quarterly VAT payable under the new scale charge is between £27.11 for a car whose CO2 emissions are 140g or below, up to £63.45 for engines rated 240g or more.
Non-prescribed “smoking cessation products” - nicotine patches, gum, etc – will be liable to only the 5% reduced rate of VAT for one year from 1 July 2007 as part of the Government’s drive to encourage smokers to quit. The concession will take effect alongside the introduction of the ban on smoking in public places in England.
The Chancellor announced another extension of the reduced rate: “I am also making changes in VAT today which will especially help grandmothers and grandfathers living with their sons and daughters. I can announce that for a specified list of alterations to housing, to support the needs of older people I will reduce the rate of VAT from 17.5 to 5 per cent.“ This measure was unexpected and does not seem to have been particularly high on any lobby group’s agenda, from which one might infer that the take up will be fairly limited. All the more surprising since this was the one VAT measure announced specifically in the Budget speech itself.
No specifics have yet been announced on this provision, but it is expected to come into effect from 1 July 2007 following discussion with representative groups. It is difficult to see how "certain housing alterations for elderly people" can be defined without also including a wider group of disabled and less-able people.
Three measures are announced to amend VAT legislation in the light of recent judgments of the European Court of Justice. These affect organisations which acquire an asset, particularly land and buildings, which is to be used only partly for the purposes of the business. In such cases the purchaser can claim back VAT on only the business proportion of the purchase price, treat the asset as wholly non-business, or use the more complicated ‘Lennartz accounting’ method whereby the asset is treated as wholly for business use and all the VAT recovered up front, accounting for VAT on the non-business use by spreading the capital cost of the asset over an
“economic life” and multiplying the cost attributed to the VAT return period by the proportion of non-business use in the period.
The first measure repeals 2003 legislation introduced to prevent Lennartz accounting on land and building. Recent ECJ decisions render these provisions ineffective. The second measure reduces the period over which VAT charges on non-business use are paid on land and buildings from 20 years to 10 years, in line with the Capital Goods Scheme. This change will affect assets where Lennartz accounting has already been applied, and where calculation will need to be made on the new basis after 1 September 2007 (subject to transitional arrangements).
The third measure, effective from 21 March 2007, closes a disputed loophole as to whether or not the rules that deem a supply of land or building to arise when an interest is disposed of for no consideration apply where there is (in land law terms) a ‘surrender’ of an interest in land. This measure will put it beyond doubt that a surrender of an interest in land for no consideration is treated in the same way as the grant of a new interest or an assignment (transfer) of an existing interest to another person.
The ongoing battle against “missing trader intra-community fraud" is to be strengthened with a further tightening of the ‘joint and several liability’ provisions. The joint and several liability provisions in section 77A of the VAT Act 1994 allow HMRC to direct that a VAT-registered business receiving goods listed in section 77A(1) from another VAT-registered business is jointly and severally liable for VAT if they had reasonable grounds to suspect that VAT would go unpaid elsewhere in the supply chain. At present the provisions apply to telephones, computers and their parts and accessories.
A Treasury order will extend the list of goods is to be brought within the scope of this legislation, specifically certain sorts of electronic equipment, of a kind ordinarily owned by individuals and used by them for the purposes of leisure, amusement or entertainment. The order also clarifies that satellite navigation systems are included as computer equipment.
HMRC will also be given powers to extend the scope of these provisions in future as this type of fraud mutates.
These provisions compliment the introduction of the
reverse charge accounting procedure announced on Monday 19 March 2007 and aimed squarely at those who choose to profit from VAT fraud.
There is some good news for charities that have obtained zero-rating for their new buildings or construction services under Extra Statutory Concession (ESC) 3.29.
With effect from 21 March 2007 they will no longer be liable for a self-supply VAT charge when there is a ‘change of use’ of the building within ten years of the zero rate having been obtained – provided the change of use was not anticipated at the time the zero-rating was obtained under the ESC.
This will enable charities to manage their affairs without a fear of a VAT penalty if their circumstances change, and will be welcomed right across the charity and voluntary sector.
The change is to be applied retrospectively too, so any charity that has paid a ‘change of use’ charge in the last three years may be entitled to a refund.