Enter Your E-mail

VAT Voice by VAT Solutions (UK) Ltd

VAT Solutions (UK) Ltd provide a reminder and summary of the VAT changes announced in the last year’s Pre-Budget Report.

Small Business Changes

Annual accounting scheme

The annual taxable turnover limit for joining the scheme is to increase from £660,000 to £1,350,000 with effect from April 2006.

Cash accounting scheme

The government has written to the European Commission with a view to increasing the turnover limit for joining the cash accounting scheme from £660,000 to £1,350,000 with effect from April 2006. This is an increase of more than 100% and may benefit up to one million small businesses.

General News

Car fuel scale charges

The Chancellor announced in Budget 2005 the government's intention to align the VAT car fuel scale charges with the income tax benefit in kind provisions. This new system is to come into force on 1 May 2007.

Bad debt relief

The government will be assessing options for providing more help in respect of bad debt relief. The outcome is to be reported in Budget 2006.

VAT Exemptions

Insurance-related services

The Government has decided to delay its decision regarding the implementation of the ECJ judgment in Arthur Andersen & Co Accountants and will monitor the progress of the review of the VAT treatment of financial services and insurance which is to be conducted by the European Commission in the near future. This delay was widely anticipated within the insurance industry. The Government has announced that it will provide industry with sufficient notice in advance of implementation of any changes to the exemption for insurance-related services. Legislative proposals are not anticipated until after 30 June 2006.

Definition of gaming machines

The betting and gaming exemption is to be amended from 6 December 2005 so that supplies made via gaming machines, even where the element of chance is not provided via the machine, are taxable. This change means that it will no longer be relevant whether the means of determining the element of chance (such as a random number generator) is sited within or outside of a machine.

Bookmakers and other businesses operating these types of machine will have to consider the impact of this measure on their VAT position including the implications for partial exemption, liability to general betting duty and liability to Amusement Machine Licence Duty.

Reduced rate of VAT on the installation of wood fuelled boilers

The 5% rate of VAT will apply to the installation of boilers fuelled solely by wood, straw or similar vegetal matter in homes and certain residential and charity buildings from 1 January 2006.

Land & Property

Outcome of the consultation on the option to tax

A number of intended legislative changes concerning the option to tax are announced. No date is given as yet on when these will become effective.

Following the consultation on the option to tax in 2004, HMRC has announced the conditions under which written consent to revoke the option to tax will be given once 20 years have elapsed from the date on which an option was made. Options will become eligible for the 20 year revocation from 1 August 2009.

Rewrite of land & property law in Schedule 10 VAT Act 1994

The Government is consulting on draft legislation to replace paragraphs 1, 2, 3 and 3A of Schedule 10 VAT Act. The rewrite is considered necessary to:

• simplify the language and structure of the law and make it more comprehensible; and

• clarify the underlying tax policy it expresses.

The rewrite does not include any changes under consideration that might be made as a result of other consultations. It proposes a number of substantive changes, particularly in relation to the practical administration of the option to tax.

The changes include:

• the repeal of provisions which are no longer needed, such paragraphs relating to the developers self supply;

• changes intended to clarify meaning, relating to the current terms 'intended for use' and 'wholly or mainly'; and

• changes to law and policy relating to the operation of the option to tax (typically beneficial for taxpayers).

The consultation includes draft legislation. The closing date for contributions is 28 February 2006.

Treatment of beneficial ownership of land

A consultation paper has been issued on the VAT treatment of land transactions where someone other than the owner of a legal interest in land has a right to income arising from that interest.

Paragraph 8, Schedule 10 of VAT Act 1994 provides that where the benefit of the consideration for a grant of an interest in land does not accrue to the person making the grant, it is the person to whom the benefit accrues who is the person making a supply for VAT purposes, and it is that person which is liable for any tax and has the right to recover input tax.

In the recent case of Abbey National Plc [2005] EWHC 831 (Ch) the court found that the contractual assignment of the benefits of a lease, where there was no separation of legal and beneficial interest, was nevertheless a supply of an interest in land and was covered by paragraph 8. In HMRC's view, this interpretation is wider than Parliament intended when the legislation was introduced and is inconsistent with EC legislation. HMRC also believes this provision creates potential for tax avoidance. HMRC intends to amend the legislation and close any tax avoidance opportunities but recognise that paragraph 8 is used by some property businesses to simplify tax accounting.

HMRC has already carried out informal consultation with the property sector but is now inviting written comments up to 28 February 2006.

January 2006

VAT Solutions (UK) Ltd
1 Dundonald Avenue
Stockton Heath
Warrington
WA4 6JT

(T) 01925 212244
(F) 01925 212255
(M) 07810 433927
(W) www.vatsolutions-uk.com

VAT Solutions (UK) Limited is an established independent firm of Chartered Tax Advisers, formed by Andrew Needham and Steve Allen. The company has a cross-section of clients from multi-national companies through to medium-sized and numerous smaller regional firms of accountants and solicitors. They produce a regular publication 'VAT Voice', which can be downloaded directly from the Internet via their website: