Value added tax (VAT)

Registration and deregistration

The VAT registration turnover limit rises to £61,000 from 1 April 2006. The deregistration limit increases to £59,000. The turnover limit for businesses to join the VAT annual accounting scheme rises to £1,350,000 from the same date. The cash accounting limit remains at £660,000 but may be increased to £1,350,000 subject to approval by the European Commission.

Reduced rate for contraceptives

The rate of VAT on contraceptive products will be reduced to 5%. The change is expected to take effect on 1 July 2006. Contraceptives that are currently zero-rated or exempt will
remain so.

Missing trader intra-community VAT fraud - 'carousel fraud'

A new provision will change the person who is liable to account for and pay the VAT on the sale of mobile phones, computer chips and some other electronic items. This new rule is subject to the agreement of the European Commission.

HMRC's power to enter premises and inspect goods in connection with VAT will explicitly include the right to mark any goods inspected. HMRC will also be able to require businesses to keep specified records relating to certain goods that they have traded, for example IMEI numbers for mobile phones. The measure is directed at goods that may be subject to VAT fraud but not limited to them. These measures take effect from Royal Assent.

Partial exemption

HMRC will 'consult informally' on two proposed changes to the VAT partial exemption regime. One would require businesses to declare whether a proposed special method is 'fair and reasonable' before HMRC gives approval for its use. The change would enable HMRC to recoup VAT that has been incorrectly claimed where the business should have known that the method was not fair and reasonable. The other would facilitate 'combined methods' that cater for the recovery of VAT relating to overseas supplies.

VAT fuel scale charges

New scales apply from the start of the first accounting period beginning after 30 April 2006.