Technical changes to VAT rules in Budget
We weren’t expecting any big announcements on VAT this month, and there weren’t any in the Chancellor’s speech today. Nigel Harris reports on some of the smaller technical changes to VAT in the Budget.
The annual increase in registration and deregistration thresholds from 1 April 2015, by £1,000 in each case, is taken for granted these days. It will be one of the few provisions that passes into law before the general election.
The 2014 Autumn Statement announced a new VAT refund scheme for palliative care charities, and this will now come into effect from 1 April 2015. This will enable such charities to recover VAT on what would otherwise be regarded as disallowed “non-business” expenditure. Around 200 charities are expected to benefit from this change.
Similarly, legislation will be included in Finance Bill 2015 to introduce a new VAT refund scheme for blood bike charities. The free, out of hours service provided by these charities is generally not a business activity for VAT purposes where the cost is met from voluntary donations and public funding, rather than from fees charged. There is no provision under normal VAT rules for medical courier charities to recover the VAT paid on purchases made to support their non-business activities. This change will extend the ability to refund VAT incurred on non-business activities to medical courier charities.
Multi-national groups in the insurance and banking sector which operate VAT partial exemption will be affected by new regulations to be introduced providing that supplies made by foreign branches will no longer be taken into account when working out how much VAT incurred on overhead costs can be deducted in the UK. They will have to implement the change from the beginning of their next partial exemption tax year falling on or after 1 August 2015. This is a result of the 2013 Credit Lyonnais case in the Court of Justice of the European Union.
Audrey Fearing, government and public sector tax partner at EY, also commented on the extension of VAT relief to the public sector.
“The shared services sector received an unexpected boost as public sector outsourcing was re-incentivised today.
“The outsourcing and sharing of services by a large number of public sector bodies has historically been hampered by the imposition of VAT resulting in the ‘in-house’ delivery model almost always being cheaper. This cost has now been removed as going forward eligible public sector bodies will be able to reclaim the VAT incurred on outsourced/shared service from HMRC.”
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