Andrew Needham discusses recently updated proposals for changes to the VAT rules.
The proposal as set out in the Consultation Document was that all the changes would take effect from 1 October 2012 and that transitional arrangements would be available for alteration works to listed buildings.
The consultation was a technical consultation on the draft legislation and analysis published within the consultation document, and not a consultation on whether to proceed with the measures. However although the consultation document tried to steer responses by asking specific questions about the draft legislation, very few respondents provided specific answers to these questions. Most instead focused on the impacts and whether they supported the measures or not.
Hot Takeaway Food - Ambient Temperature
The consistent picture from businesses was that it would be difficult for businesses to operate the ‘ambient temperature test’ on food that was cooling down naturally, and that the test would be difficult for HMRC to police. These comments came mainly from those that would have to operate the test.
Businesses also maintained that in some cases (for example where the product is cooling, only partly hot, or hot on the inside) staff would find it difficult to accurately determine whether the food was above ambient temperature without temperature probing at the point the food was provided to the customer. They were also unconvinced that HMRC simplification schemes, including schemes based on sampling, would solve this issue.
As a result of the responses received to the consultation on this issue the Government announced a revised set of tests on 28 May 2012 to define 'hot food' for VAT purposes. These revised tests address the concerns raised from the consultation whilst also dealing with the inconsistencies generated from the current rules and without imposing any significant additional burdens. Under the new tests food that is cooling naturally, such as Cornish pasties and sausage rolls, will continue to be zero-rated.
Under the revised proposal HMRC will retain the existing test, which taxes food which is provided hot for the purposes of allowing it to be consumed above the ambient air temperature. But HMRC will add to it a number of new objective tests to prevent the anomalies that have arisen as a result of case law over the years.
HMRC has considered the responses on the scope of the legislation, however as they explained in the consultation document, the proposed legislation was necessarily drawn widely so that it taxed all forms of self-storage to ensure that similar supplies are taxed in the same way. The legislation therefore covered all forms of self-storage and not just self-storage in purpose built facilities. However, HMRC did not intend stabling of livestock to be covered by the measure and so to put the matter beyond doubt HMRC will amend the legislation to specifically exclude the storage of live animals.
Hairdressers Chair Rental
In response to points made in the consultation HMRC are clarifying the draft legislation to better describe the types of services typically provided to a hairdresser under a chair rental agreement, while excluding other services HMRC think could legitimately be included in an exempt supply of land. HMRC have also made it clear that the supply of a whole building to a hairdresser will only be caught by this provision if it is supplied with goods or services (i.e., as part of an overall supply of hairdressing facilities).
As a result of the responses received to the consultation on this issue the Government has already announced some changes. As a pragmatic response, rather than having a single dividing line between a zero rate of VAT on residential park homes, and 20% on static holiday caravans, the Government will introduce VAT on static holiday caravans and touring caravans longer than 7 metres at the reduced rate of 5%. To give the industry more time to adjust the measure will be delayed until 6 April 2013.
The Government will amend the transitional arrangements to make them more generous and provide relief to more projects already underway at Budget by specifying an earlier trigger point for projects to benefit from the transitional relief and by extending the length of the transitional period. HMRC have considered a number of options and concluded that in order to be fair, the trigger point should apply equally to all types of project. Projects will therefore now also continue to benefit from zero-rating if listed building consent (or the equivalent approval for listed places of worship) had been applied for before 21 March 2012 (Budget Day). This is in addition to the works which qualify because there was a written contract in place before Budget Day or because it was a substantial reconstruction project meeting the 10% test.
The Government will also extend the end of the transitional period to 30 September 2015, allowing qualifying projects to continue to benefit from zero rating for 3½ years, or 4 summers. This should ensure that the majority of qualifying projects underway at Budget should qualify for transitional relief.