Value Added Tax

Registration thresholds

The level of turnover at which a business has to register for VAT is increased from £64,000 to £67,000 with effect from 1 April 2008.The deregistration threshold will increase from £62,000 to £65,000.

Fuel scale rate charges

Since 1 May 2007, the scale rate which must be applied by a business which provides fuel for its employees to use for their private motoring has depended on the CO2 emissions rating of the car. The charge is not the result of a simple formula as for the income tax charge, and individual figures have to be looked up in a table published on the HMRC website (www.hmrc.gov.uk) or elsewhere.

 

The rates rise for VAT periods starting on or after 1 May 2008. There is a new minimum figure for cars with emissions ratings up to 120g/km, but otherwise the charges increase for all cars. Once again the precise figure has to be obtained from the full table, as it cannot simply be calculated.

 

Renovation of empty properties

For several years the lower rate of 5% has been applicable to renovations and alterations to dwellings that have been empty for at least three years. This is amended with effect from 1 January 2008 so that the required empty period is reduced to two years.

Correction of VAT errors

If a trader discovers errors in VAT accounting of more than £2,000, it is currently necessary to notify HM Revenue & Customs in order to correct them. Smaller errors can be adjusted in the VAT return without separate disclosure. From 1 July 2008, the limit will rise to the greater of

£ 10,000 or 1% of turnover disclosed on the return in Box 6. Errors corrected in this way do not create a liability to interest.

Option to tax

Owners of commercial properties can choose whether to charge VAT on supplies of land, or to take advantage of the exemption that generally applies. The rules on this “option to tax” are being revised following a consultation. The new version will apply from 1 June 2008.

Overpaid or underclaimed VAT

In 1996, the Government introduced a three-year time limit for claiming back output VAT that should not have been paid. In 1997,this was extended to underclaimed input VAT. Because these rules were brought in without warning, the European Court of Justice held that they contravened traders’ rights to a reasonable transitional period. The Government has finally accepted this ruling, and the last chance to claim VAT from before the caps were introduced will now run until 31 March 2009.

 

Transfer of going concern (introduced in 2007 budget)

Where a business is transferred as a going concern,VAT legislation requires that the records are handed over to the new owner. From 1 September 2007 the rules will be changed to recognise that this is often not practical.

 

Carousel fraud  (Introduced in 2007 budget)

The Treasury has suffered huge losses to frauds based on the movements of goods around the EU – mainly computer chips and mobile phones.The Budget included one measure aimed at cutting these losses – the extension of rules which can impose liability for unpaid VAT where a fraudulent trader “disappears” with money owing to Customs. Anyone involved in international transactions in computers, phones and electronic goods need to be aware of these changes, which take effect from 1 May 2007.

 

A separate announcement was made before the Budget confirming that the “reverse charge” procedure will be applied to domestic sales of these categories of goods from 1 June 2007. Again, those who buy or sell such goods need to assess the effect in good time.