VAT and indirect taxes

Changes to registration and deregistration thresholds

From 1 April 2012, the taxable turnover threshold, which requires a person to register for VAT, will be increased from £73,000 to £77,000 per annum; the threshold below which a VAT-registered person may apply to deregister will be increased from £71,000 to £75,000 per annum, and the relevant registration and deregistration threshold for Intra-Community acquisitions will also be increased from £73,000 to £77,000 per annum.

The simplified reporting requirement (three line accounts) for the income tax Self Assessment return will continue to be aligned with the VAT registration threshold.

VAT online registration

The online VAT registration system will be introduced with effect from 31 October 2012. Consequently, certain VAT forms will be removed from VAT law on the same date. From 1 December 2012, the VAT threshold for businesses not established in the UK will be removed.

Addressing borderline anomolies

On 21 March 2012, the Government issued a consultation document entitled, ‘VAT: Addressing borderline anomalies', outlining its proposals for changes to the treatment of certain supplies for VAT purposes and inviting comments by 4 May 2012. The document refers to draft legislation changing the VAT treatment of supplies of catering, sports drinks, self storage, hairdressers' chair rental, holiday caravans and alterations to listed buildings. If implemented, the changes will either confirm and clarify the existing scope of the standard rate for such supplies, or marginally extend it. Contributions are invited from manufacturers and retailers or relevant goods; providers or relevant services; consumers of all relevant supplies, and tax practitioners. Details of the proposed changes to each type of supply follow.

Addressing Borderline Anomalies: Hot Food

For supplies made on or after 1 October 2012, all hot takeaway food, except freshly baked bread, will be standard rated as a supply of catering. The changes also confirm the meaning of ‘premises' to clarify that food sold for consumption in an area adjacent to the retailer or in areas shared with other retailers is standard rated. In other words, both areas are ‘on the premises' for the purposes of a supply of catering.

The main test will be whether the food is above ambient air temperature when supplied to the customer, rather than the purposes for which the food is heated.

Addressing Borderline Anomalies: Sports Nutrition Drinks

For supplies made on or after 1 October 2012, the sale of sports nutrition drinks (mainly carbohydrate, protein and/or creatine based drinks) will be standard rated. Specifically, these are drinks marketed as products that enhance physical performance, accelerate recovery after exercise, or build bulk.

Addressing Borderline Anomalies: Self-Storage

For supplies made on or after 1 October 2012, all supplies of self-storage facilities will be standard rated. Currently, such supplies are exempt supplies of land, with the option to tax available. This should be distinguished from commercial supplies of storage space, which do not provide a discreet storage area and where the supplier can move the customer's goods around as he sees fit, which are already standard rated. The purpose of the change is to counter abuse by suppliers of self-storage facilities and to create commercial fairness.

Addressing Borderline Anomalies: Approved Alterations to Listed Buildings

For supplies made on or after 1 October 2012, construction services and building materials supplied in the course of an approved alteration to a listed building, designed to remain or become a dwelling or a building solely for use for a relevant residential or charitable purpose, will become standard rated. They are currently zero-rated, provided the building required and has received listed building consent as well as any planning permission.

Furthermore, although the sale of a substantially reconstructed listed building for qualifying use will remain zero-rated, one of the two current definitions of ‘substantial reconstructed' will be removed, i.e. a qualifying building will no longer be substantially reconstructed if at least 60 per cent of the work on it constitutes approved alterations. The definition will only apply to buildings reconstructed from a shell.

Addressing Borderline Anomalies: Hairdressers' Chair Rentals

For many years, there have been disputes as to whether the rental of a chair by a salon to a hairdresser is an exempt supply of land or a standard rated right to use facilities. For supplies made on or after 1 October 2012, all supplies of chair rentals will be standard rated, through a change to VATA 94 Schedule 9 Group 1 Item 1. A specific reference to chair rentals will be added as an exception to the exemption for supplies of land to ensure there is no doubt such supplies are standard rated.

Addressing Borderline Anomalies: Taxing Holiday Caravans

For supplies made on or after 1 October 2012, the sale of holiday caravans will be standard rated if they are not designed and constructed for continuous year-round occupation. Zero-rated holiday caravans are mainly static caravans but will also include a small number of larger touring caravans which can be towed by a motor vehicle.

Addressing Borderline Anomalies: Anti-forestalling provisions

Changes to the VAT treatment of self-storage facilities and approved alterations to listed buildings will apply to supplies made on or after 1 October 2012. Legislation introduced on 21 March 2012 will ensure that where actual tax points fall between 21 March 2012 and 30 September 2012, but the basic tax point is on or after 1 October 2012, the new VAT treatment will apply.

Details of this legislation are in the draft legislation and explanatory note, ‘VAT: anti avoidance provisions relating to liability changes to supplies of self storage facilities and approved alterations to listed buildings' issued on 21 March 2012.

Fuel scale charges

As usual, changes have been made to fuel scale charges and the new rates are applicable to VAT return periods starting on or after 1 May 2012. The new rates can be found in Annex B of the document ‘Overview of Tax Legislation and Rates' in the Budget Documents section of the HMRC website.

The Government has also announced that it plans a consultation on possible changes in Finance Bill 2013, giving effect to extra statutory concessions on fuel scale charges and publishing the annual rate changes in a public notice, which has force of law, rather than through a statutory instrument as at present.

VAT relief for European research infrastructure consortia (ERICS)

VAT relief will become available for European Research Infrastructure Consortia through Secondary legislation to be introduced in the autumn of 2012.

Installation of energy saving materials in charitable buildings

Legislation will be introduced in Finance Bill 2013 to reduce the scope of the reduced rate applicable to the installation of energy-saving materials. It will no longer apply to installations in buildings for a relevant charitable purpose, but remain for residential buildings, including those operated by charities.

Zero rate for adapted motor vehicles and boats for wheelchair users

The Government has announced it plans to introduce a voluntary disclosure scheme in order to gather information about the use of this relief, which is often abused because of different interpretations and its difficulty to administer.

Refunds for NHS bodies

The Government will introduce legislation in Finance Bill 2013 to include certain NHS bodies within the Section 41 refund scheme.

Invoicing rules

As a result of the EU Invoicing Directive, the UK Government will introduce secondary legislation effective from 1 January 2013, simplifying the rules for VAT invoices.

Universal credit consequential changes

Changes will be introduced by statutory instrument from 1 April 2013 to ensure that all universal credit claimants can obtain the same reliefs as were available to claimants of the benefits it replaces. The changes will apply to certain zero and reduced rate provisions.

Consultation on exemption for supplies of education

The Government is planning a consultation on the VAT exemption for providers of education with a view to ensuring commercial universities are treated fairly.

Freight transport services

There are currently temporary provisions in place to ensure transport and related services performed wholly outside the EU are not liable to UK VAT where the recipient is a UK business or charity. In the autumn of 2012, the Government will introduce secondary legislation to formalise these arrangements.

Treatment of small cable-based transport

Such services are currently subject to the standard rate of VAT, but will become subject to the reduced rate in 2013. The change will apply to vehicles that carry fewer than 10 people and will be evaluated after three years. A consultation will precede the changes, in the summer of 2012.

Tobacco duty

With effect from 6pm on 21 March 2012 the rate of duty increases on all tobacco products imported into, or manufactured in, the UK by 5% above retail price inflation. This will have the effect of increasing costs at the point of sale as follows:

• 37p to a packet of 20 cigarettes and a 25g of hand-rolling tobacco
• 20p to a 25g packet of pipe tobacco, and
• 12p to a packet of 5 small cigars

Machine games duty (MGD)

The taxation of gaming machines is to be reformed in order to put tax revenues from gaming machines on a more sustainable footing. MGD will be charged on the net takings from playing dutiable machine games. These are games played on a machine where customers hope to win a cash prize greater than their stake. The changes are introduced on 1 February 2013.

These changes are introduced after the issue of two consultation documents in 2009 and 2011. Where MGD is payable, it will replace both Amusement Machine Licence Duty and VAT. There will be two rates of MGD. The lower 5% rate will apply to machines with maximum stakes of 10p and maximum cash prizes of £8, and the standard 20% rate will apply to all other dutiable machine games.

Aggregates levy

The planned increase in the aggregates levy rate from £2.00 to £2.10 per tonne has been delayed until 1 April 2013.

Landfill tax

The standard rate from 1 April 2012 is £64 per tonne and from 1 April 2013 this increases to £72 per tonne. The lower rate remains at £2.50 per tonne.

Stamp duty land tax (SDLT): SDLT avoidance

The SDLT legislation is to be amended for transactions on or after 21 March 2012 to ensure that an SDLT avoidance scheme, involving the sub-sales rules and an option to purchase land is ineffective. The grant or assignment of an option will not be able to satisfy the requirements of the sub-sale rules.

SDLT rate in respect of residential property of over £2 million

The rate of SDLT charged on the purchase of a residential property for more than £1 million is currently 5%. For properties where the purchase price exceeds £2 million, a new SDLT rate of 7% will be charged where the effective date of the transaction is on or after 22 March 2012. Transitional provisions will ensure that the old 5% rate applies for contracts entered into before 22 March 2012 but completed on or after that date.

SDLT rate: taxation of high value residential properties

A number of high value properties have been purchased in the UK using complicated ownership structures involving companies and/or trusts.

In cases where a UK residential property is purchased for more than £2 million on or after 21 March 2012 and the purchaser is a ‘non-natural person', the rate of SDLT will be 15%. A ‘non-natural person' is defined as including companies, collective investment schemes (including unit trusts) and partnerships in which a ‘non-natural person' is a partner.

The intention is to stop or reduce the number of high value property transactions that are undertaken using such structures. In addition, it is proposed to introduce an annual charge in 2013 on such a property that is owned by a ‘non-natural person'.