VAT: Land and Property Changes

There is a proposal to remove the exemption and zero rating from certain transactions relating to land and building from the 1^st October 2012.

The changes affect:

1.        The exemption currently applying to self storage

2.        The exemption applying to the rental of chairs by hairdressing salons.

3.        The zero rate applying to the sales of caravans for holiday use

4.        Approved alterations to residential or charitable buildings

All of the above supplies will become standard rated. In addition, the first grant of a major interest in the substantial reconstruction of buildings at item 4 above will be exempt where the building is not reduced to a shell.

Footnote: The imposition of the standard rate to self storage is confusing to say the least especially since the definition is not clear and the exemption will still apply to such transactions between connected businesses. Hopefully the government will clarify these issues before the 1^st October 2012 deadline.

Exemptions for chair rental within hairdressing salons have been the subject of litigation for many years and this proposed measure will certainly put the issue to rest.

The change being proposed to caravans seeks to restrict the application of the zero rate to residential caravans as originally intended.

Currently, approved alterations to qualifying listed buildings are zero rated whilst repairs and maintenance are standard rated. Further, zero rating currently applies to the first grant of a major interest in a listed building where at least 60% of the works qualify as approved alterations. Such a grant will now become exempt so that input tax incurred in construction can not be recovered. There is however a transitional period for contracts that were signed prior to budget day 21^st March 2012, (or the case of substantial reconstructions where 10% of the works have been completed by 21^st March 2012), where the zero rate will still apply and VAT incurred therefore recoverable. This period expires 20^th March 2013.

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VAT: Food & Drink Changes

The zero rating for food is to be re-aligned to remove inconsistencies and perceived anomalies. The areas of focus are: hot take-away; food consumed on shared premises; and nutrition beverages.

The proposal seeks to ensure that all food that is above the ambient temperature when provided to the customer is standard rated with the exception of freshly baked bread.

Additionally the thin line between “on premises” and “off premises” will be removed. As a result, food supplied in all areas set aside for the purpose, including premises shared with other retailers, will be treated as supplied in the course of catering and standard rated. As a consequence food consumed in food courts in shopping centres and at table and chairs on pavements will be standard rated.

Sports drinks are usually zero rated because of their nutritional content. This proposal is intended to standard rate all sport drinks regardless of their nutritional content.

Footnote:  Under EU law, once the tax base is broadened in this respect there can be no reversal. The draft legislation is the subject of consultation with a 4^th May 2012 deadline for responses. It remains to be seen whether these measures create simplification or more confusion. Example, how do you define “freshly baked bread”? 

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VAT: Fuel Scale Charges

The fuel scale charge for private use of business fuel will increase in line with fuel prices for VAT accounting periods ending on or after 1^st May 2012. Subject to consultation, an extra statutory concession (ESC) allowing businesses to avoid the scale charge will be brought into UK law. 

UK law currently requires a scale charge to be paid when business fuel is used for private use. The ESC will allow companies who do not claim VAT on the petrol not to pay the scale charge. 

 

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VAT: Changes to the Registration & Deregistration Thresholds

The registration threshold for VAT is now £77,000 from the 1^st April 2012 with the corresponding de-registration threshold set at £75,000.

From 1^st December 2012, the threshold for overseas businesses trading in the UK will be removed, (i.e. a nil registration threshold will apply), bringing the UK in line with other European jurisdictions.

Also, by 31^st October 2012 HMRC will introduce an online VAT facility where businesses will be able to register, deregister and amend their company details.

Footnote: the £4,000 increase in the VAT threshold is the largest in recent years and will increase the number of businesses that will escape the VAT net. 

www.he-llp.com

0113 815 1315

15 Queens Square, Leeds, LS2 8AJ