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VAT registration threshold rises to £77,000

21st Mar 2012
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Once again, VAT played a minor role in the Budget 2012 proceedings. The measures announced included:

  • Correction of certain anomalies in the VAT system that cause very similar products to be taxed very differently.
  • Increase in VAT registration limit to £77,000 from 1 April 2012
  • Annual adjustment to the VAT fuel scale rates, in line with current fuel prices, from 1 May 2012
  • Confirmation of a range of measure previously announced, to come into effect in 2012 and 2013.

The £4,000 increase in the registration threshold is in line with inflation, but as Rebecca Benneyworth explained, "The bigger the limit, the bigger the increase".

Measures to correct VAT anomalies and loopholes

The Treasury seems to have been accumulating a list of anomalies that it has now decided to remove. Some of these have been the subject of VAT appeals in the past which have left uncertainty as to the correct VAT treatment on borderline cases. In some cases the Treasury claims that a significant minority of traders have historically not charged VAT where they believe it should have been charged. These changes aim to remove all uncertainty.

From 1 October 2012, VAT will be extended to remove anomalies by charging VAT on:

  1. self storage (to align it with other forms of storage) and
  2. alterations to listed buildings (to align with the existing VAT treatment of repairs),

and to close loopholes in respect of:

  1. hairdressers’ chairs (to make clear that their rental is already subject to VAT),
  2. static holiday caravans (to bring in line with mobile caravans),
  3. certain hot take away food (because most hot food is already subject to VAT) and
  4. sports nutrition drinks (treating them the same as standard-rated soft drinks).

Anti-forestalling provisions will be introduced in Finance Bill 2012 with effect from 21 March 2012 to prevent suppliers from artificially bringing forward the tax point on supplies made after 30 September 2012.

These changes are subject to a short consultation period (21/3/2012 – 4/5/2012) during which interest parties are invited to put forward their views and comments.

Whilst they may look fairly academic, the accompanying Treasury notes predict that these changes will save £125m next year rising to £350m pa in five years time!

Registration and deregistration thresholds – From 1 April 2012 the VAT registration threshold will be increased from £73,000 to £77,000 and the deregistration threshold from £71,000 to £75,000.

The simplified reporting requirement (three line accounts) in the self employment section of the Self Assessment tax return will continue to be aligned with the VAT registration threshold

* * * 

Other VAT changes announced were largely a reminder of changes previously announced over the last year or so:

Fuel scale charges – Subject to consultation, the law relating to VAT Fuel Scale Charges will be amended, bringing long standing concessions into law and withdrawing a concession relating to partially exempt businesses. The way in which the annual revalorisation is carried out will be simplified.

Freight transport services performed wholly outside the EU – To formalise the temporary arrangements under which supplies of freight transport and related services taking place wholly outside the EU are not liable to UK VAT when performed for UK businesses and charities.

Invoicing rules – Minor changes to simplify the UK VAT invoicing rules from 1 January 2013 to conform with the EU Invoicing Directive.

Education – Review of the VAT exemption for providers of education, in particular at university degree level, to ensure that commercial universities are treated fairly

Charitable buildings – Withdrawal of charitable buildings from the scope of the VAT reduced rate for the supply and installation of energy-saving materials.

Car and boat dealerships – Introduction of a voluntary scheme for car and boat dealerships, encouraging them to report sales of adapted motor vehicles and boats to HMRC.

Small cable-based transportation systems – A very niche provision introducing a 5 per cent reduced rate of “VAT for passenger transportation in cable-based transport systems carrying fewer than ten people”, which seems to relate to small cable car operations.

* * *

Previously announced in the 2011 Budget:

Tackling fraud on imported road vehicles – A new system to tackle VAT evasion on road vehicles brought into the UK will be introduced from 15 April 2013. Vehicles will have to be notified online to HMRC before registration with the Driver and Vehicle Licensing Agency.

Status of public bodies – Finance Bill 2012 will amend UK law to ensure that there is clear transposition of EU agreements relating to the VAT treatment of public bodies carrying out their statutory duties in competition with the private sector.

Grouping extra statutory concession – Finance Bill 2012 will bring a long standing concession on the valuation of certain reverse charges applicable to VAT groups into law.

Online registration and online filing – An online system for VAT registration, de-registration, and changes to business details will be implemented with effect from 31 October 2012 and the equivalent paper VAT forms will be abolished. The VAT threshold for businesses not established in the UK will be removed from 1 December 2012.

* * *

Previously announced in the 2011 Autumn Statement:

Cost sharing – Introduction of a VAT exemption for services shared between VAT exempt bodies including charities and universities.

Low Value Consignment Relief – VAT relief on low value imports from the Channel Islands will be abolished from 1 April 2012, which will affect sales by a number of major online retailers who have based their operations there. Some will no doubt already have plans to move on to avoid the impact on their effective retail prices.

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