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Steve Allen of VAT Advisers points out that 1 April 2010 was a very significant day in terms of VAT changes.

Introduction

In the usually sedate world of VAT, it’s fair to say that 1 April 2010 has turned out to be a maelstrom of HMRC changes. So much so, that we thought it might be useful to summarise them all for easy reference:

Increased VAT Registration and Deregistration Thresholds

The VAT registration threshold increased from £68,000 to £70,000, and the deregistration threshold increased from £66,000 to £68,000. 

Online VAT Return Filing

Compulsory electronic submission now applies to any existing VAT-registered business with an annual VAT-exclusive turnover of more than £100,000, and all new businesses VAT registered on or after 1 April 2010. The seven-day extension rules for electronic VAT return submission and payment continue unchanged.

New Four-Year Time Limit for Assessments and Claims

Following the completion of the transitional period introduced from 1 April 2009 (which prevented the twelve-month period prior to 31 March 2006 from coming back into time again), there is now a four-year time limit for HMRC to raise assessments of tax. In terms of making VAT claims, the effect is two-fold as follows:

1. Overpaid Output Tax (VATA 1994 s 80 claims)

The time limit for claiming overpaid output tax is now four years from the end of a prescribed accounting period (i.e., VAT return period). The first output tax to fall out of time will be for periods ending 30 April 2006, which will fall out of time after 30 April 2010. For businesses with calendar quarters, the first output tax to fall out of time will be for the periods ending 30 June 2006, with the deadline for such claims being 30 June 2010.

2. Underclaimed Input Tax (reg 29 claims - SI 1995/2518 Reg 29)

The time limit for under-claimed input tax is now four years from the due date for the return period during which the entitlement to input tax arose. This means the first input tax to drop off will be that incurred in March 2006, which will have been claimed on a return due post 31 March 2006). This VAT will go out of time on 30 April 2010.

New ‘Failure to Notify' Penalty

In VAT terms, the 'failure to notify' penalty is essentially a new late registration penalty, but it also covers other failures to notify, such as the requirement to give notification of acquisition of goods from another Member State. This penalty was the subject of the ‘In Focus' Section of the previous edition of VAT Voice. It is calculated on the amount of tax due, and the bands of penalty percentages are very similar to those of the ‘inaccuracy penalty' regime introduced last year for VAT returns.

VAT & Excise Wrongdoing Penalty

A new VAT & Excise ‘wrongdoing penalty' has been introduced, and applies where a person:

• Issues an invoice with VAT he is not entitled to charge 
• Handles goods on which Excise Duty has not been paid or deferred
• Uses a product in a way which means more Excise Duty should have been paid
• Supplies a product at a lower rate of Excise Duty knowing that it will be used in a way that means a higher rate of Excise Duty should be paid

As with the ‘inaccuracy' andd ‘failure to notify' penalties, the penalty banding depends on the reason for the wrongdoing and the nature of disclosure.

VAT Payments by Cheque - New Cleared Funds Rule

From 1 April 2010, all cheque payments by post to HMRC will be treated as being received on the date when cleared funds reach HMRC’s bank account. This needs to be considered when paying VAT returns by their due date.

Partial Exemption Simplification

Two simplifications to the partial exemption process were introduced from 1 April 2010.

The first is the ‘annual test' which allows a business to apply the de minimis test on an annual basis rather than quarterly. However, this will not be available to businesses that expect their total input tax to exceed £1M per year, or to newly VAT-registered businesses.

The second simplification is the ‘simplified test' which gives VAT-registered taxpayers the opportunity to use a simple test to calculate whether they are de minimis, rather than performing a full partial exemption calculation. The test requires total input tax (minus input tax that relates exclusively to taxable supplies) to be no more than £7,500, and the value of exempt supplies to not exceed 50% of the value of all supplies.

Enforcement of Judgments in Litigation

Currently, where a Tribunal or Court finding is appealed by HMRC following a taxpayer win, HMRC has to repay overpaid taxes before the appeal is heard. However, where the decision is in favour of HMRC, they do not consistently collect the tax from the taxpayer before the appeal.  Going forward, a new policy will require payment of the tax in all such cases, and will take effect on all decisions in favour of HMRC made by the Tribunals or Courts from 1 April 2010. [ Well at least one may be able to claim compound rather than simple interest - see VAT Case Update 1 for further information - Ed. ] In VAT appeals, the taxpayer may apply for the tax to be held over if they can demonstrate they would suffer financial hardship by being forced to pay the tax prior to appeal hearing.

Simplification of the Option to Tax and Changes to Definition of a Housing Association

A number of changes have been made to the liability of supplies of land and buildings, as well updating the legislative definitions of a ‘relevant housing association'.

The first change is a simplification of the option to tax concerning disapplication. It excludes certain transactions from the anti-avoidance provisions, and allows developers to tax supplies of buildings where persons financing the construction are only in minor occupation of the building. There is also a simplification of the six month 'cooling-off' period to revoke an option to tax. HMRC have removed the condition that a taxpayer must not have used the land in order to be able to revoke the option.

Changes were also made to the definition of a ‘relevant housing association' to reflect the new Housing and Regeneration Act 2008, which replaces the existing system in England. Schedule 10 refers to the Housing Act 1996, which only now applies in Wales. A similar definition change was also made to Group 5 of Schedule 8, which covers construction.