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Steve Allen, Director of VAT Solutions (UK) Ltd, summarises the VAT changes announced in the Budget, and gives a brief initial reaction.

Steve Allen

Changes relating solely to VAT

• VAT registration threshold increased from £64,000 to £67,000 from 1 April 2008.
• VAT deregistration threshold increased from £62,000 to £65,000 from 1 April 2008.
• VAT registration and deregistration limits for relevant acquisitions from other EU Member States increased from £64,000 to £67,000 from 1 April 2008.
• Following the House of Lords decision in the Fleming/Conde Nast case, claims for repayment of VAT for the tax periods set out below will become subject to a three-year time limit on 1 April 2009: 
   o Tax periods before 4 December 1996 (for output tax previously overdeclared) 
   o Tax periods before 1 May 1997 (for input tax previously underclaimed)
• The legislation relating to the option to tax land and/or buildings will be simplified, and minor changes will be introduced to enable taxpayers to revoke an option to tax after 20 years.
• The scope of the VAT exemption for fund management is to be extended from 1 October 2008 to cover UK-listed investment entities (including investment trust companies and VCTs) and certain overseas funds.
• From 1 July 2008, the Voluntary Disclosure threshold increases from £2,000 to the greater of £10,000 or 1% of turnover (limited to a maximum of £50,000).
• The staff hire concession, whereby VAT on supplies of staff can be limited to just the mark-up/profit element, is to be withdrawn from 1 April 2009

General changes which include VAT

• Finance Bill 2008 will provide for a single legislative framework for penalties for incorrect returns and a similar single framework for penalties for failing to notify a taxable activity to be introduced.
• HMRC will be able to accept payments by credit card from Autumn 2008.
• Finance Bill 2008 will include provision for HMRC to be able to set off repayments due to taxpayers against debts they owe and will also provide for HMRC’s debt enforcement powers to be modernised and aligned.
• Finance Bill 2008 will include legislation to clarify the powers of HMRC to examine and search goods and baggage being imported and exported.
• Legislation will be included in Finance Bill 2008 to provide for secondary legislation to be introduced to change the way appeals against HMRC decisions are handled (to tie in with the wider Tribunal reforms due to be implemented in 2009).
• Proposal to alter the time limits for assessment of both direct and indirect tax - in the case of VAT, the proposal is to extend the current 3-year limit to 4 years on or after 1 April 2010 (a transitional period will be applied). HMRC will similarly extend the ability to claim refunds of overpaid/underclaimed VAT to 4 years.
  

Changes involving other indirect taxes

• Vehicle Excise duty for private vehicles registered before March 2001 increases by £5.
• Vehicle Excise duty for private vehicles registered from March 2001 for the most polluting cars (band G) rises to £400 for 2008/09. There are also (lower) increases for bands C to F.
• Standard rate of landfill tax will be increased to £32 per tonne from 1 April 2008 and to £40 per tonne from 1 April 2009.
• The rate of aggregates levy will increase to £1.95 per tonne from 1 April 2008 and to £2.00 per tonne from 1 April 2009.
• The rates of the Climate Change Levy will be increased broadly in line with inflation for 2008/09 and 2009/10.

Comment

Three-year capping claims

The Budget has provided for a longer than expected transitional period (to 1st April 2009), during which, businesses will be able to make final claims for pre-4.12.96 overpaid output tax, and pre-1.5.97 underclaimed input tax. Such claims can be made back to 1973, and this transitional period provides certainty for affected businesses. 

Withdrawal of Staff Hire Concession

The withdrawal of the Staff Hire Concession (“SHC") in April 2009 will have a significant impact on the exempt sector.  The SHC was introduced in 1997 to remove a tax distortion between employment businesses acting as principals (who charge VAT on the full value of supplies of staff) and those acting as agents (who only charge VAT on their commission).
 
Those impacted by the change will be banks, insurance companies, charities, healthcare providers etc. and will effectively now create a tax distortion between employment and temporary staff (in the former where salaries are not taxed, but in the latter where they will be) at a time when the economic outlook is uncertain.  One distortion has therefore been replaced by another, and you have to wonder whether a more targeted approach would have better dealt with HMRC’s concerns.