The following sets out the VAT, and other Indirect Tax, measures announced in the Budget 2008 of relevance to local authorities:

The Budget - 12th March 2008        View Customs and Excise budget notes here

Overview

In addition to the customary annual increases in registration/deregistration limits and fuel scale charges, the 2008 Budget has introduced changes to the Voluntary Disclosure system, the option to tax and correction of errors made prior to May 1997 and is, therefore, of interest to all local authorities. There are also changes to Landfill Tax and Climate Change Levy which will result in increaded costs to local authorities.

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Fleming/Conde Nast - Transitional Arrangements for Retrospective Claims

Following the House of Lords judgement in January, new legislation is to be introduced setting out the transitional period in which claims may be made for overpaid output tax (up to 4 December 1996) or underclaimed input tax (up to 1 May 1997). The transitional period for the acceptance of such claims will expire on 31 March 2009. The legislation will also correspondingly amend the powers of assement of HM Revenue & Customs (HMRC)to ensure that assessments may be made to recover any amounts paid which are subsequently found to have been incorrectly claimed.

Comment: This is important. LAVAT is particularly well placed, given its understanding of the sector, to help you identify those local authority activities where the VAT treatment has changed since 1996 thus allowing opportunities for retrospective claims. Please call your usual LAVAT contact to discuss how it affects you.

Correction of errors

This measure will increase the limit below which errors on previous VAT returns may be corrected on the VAT Return for the period in which the errors are discovered. The threshold above which errors have to be notified to HMRC has been raised from the current £2,000 to a greater of £10,000 or 1% of your VAT return Box 6 figure, subject to an upper limit of £50,000.

The new rules take effect from 1st July 2008.

Comment: The system of notifying errors to HMRC by voluntary disclosure – and then receiving a bill for interest – has always been time-consuming and unproductive, particularly as the threshold has remained unchanged since its inception. The raising of the limit to between £10,000-£50,000 is to be seen as a welcome simplification measure which will result if fewer disclosures being made. However, this does mean that, for the first time, the Box 6 (Outputs) figure of your VAT return serves a practical purpose; you may, therefore, wish to refer to paragraph 5.6 of Customs’ Notice 700/12 which explains what amounts should go into Box 6.

Put in box 6 your total sales/outputs excluding any VAT. Include:

• standard-rated supplies including road fuel scale charges (see Notice 700/64 Motoring expenses)
• supplies to VAT registered traders in EC Member States; supplies to non-VAT registered or private individuals in EC Member States (distance sales)
• zero-rated supplies, including export supplies
• exempt supplies
• any other business income
• “reverse charge” transactions
• purchases under the special accounting scheme for gold
• supplies which are outside the scope of UK VAT under the Notice 741 Place of supply of services
• deposits for which an invoice had been issued
• own goods transferred to other EC Member States and
• supplies to customers in EC Member States on a sale or return basis.

VAT Registration and Deregistration limits

The VAT registration threshold is increased to £67,000 per year from 1 April 2008 and the Deregistration threshold to £65,000.

Comment: Although not directly relevant to local authorities – their registration limit is defined elsewhere in the VAT Act – it is of interest to those with trading companies, those who administer other VAT registrations, or school private funds and other bodies with close links to local authorities, such as charities and trusts, which have trading activities.

The Option to Tax

Schedule 10 of the VAT Act 1994 is to be simplified and brought up to date. Details of how to revoke an option to tax will be included and a number of minor changes will be made.

A number of associated changes to improve practical administration of the option to tax and its revocation are likely to be included in the legislation -

• opted properties held in a VAT group;
• opted buildings acquired for use as dwellings or relevant residential purpose and bare land acquired for construction of building for such purposes;
• the introduction of a new option to simplify the option to tax process for taxpayers with a number of properties;
• early revocation of an option to tax within a “cooling-off” period;
• the automatic lapse of an option to tax six years after the taxpayer ceased to have any interest in a property that they had previously opted to tax;
• the ability, in certain circumstances, to exclude a new building from a previous option to tax; and
• late applications for permission to opt to tax.

These changes are to be effective from 1 June 2008.

Comment: Schedule 10 has been added to over the years to become one of the most complex pieces of VAT anti-avoidance legislation to have ever been drafted. The simplified Schedule 10 will be better set out and will use simpler language and shorter sentences. There will also be minor technical changes following ECJ cases, but these have been incorporated in such a way that their practical effect will be little different to the way that the option to tax works now. The “permission” regime will also be varied.

Exemption for Fund Management

The exemption for financial services has been widened to cover additional investment bodies.

Comment: Technical changes which may affect the financial institutions you deal with, such as investment companies.

Landfill tax: Withdrawal of the exemption for waste from contaminated land

The contaminated land exemption has allowed developers of brownfield sites to remove contaminated material from their sites and dispose to landfill free from landfill tax. This landfill tax exemption was seen to encourage brownfield, as opposed to greenfield, site developments.

Parties effected –

• Landfill site operators.
• Developers of contaminated land.
• Owners of contaminated land – where the value of the land may be affected by the withdrawal of the exemption.

Draft legislation is to be published and consulted on during summer 2008. No applications for contaminated land certificates will be accepted by HMRC after 30 November 2008. All contaminated land exemption certificates will expire no later than 31 March 2012.

Landfill Tax rates are/will be –

From 1 April 2007 - £24 per tonne
From 1 April 2008 - £32 per tonne
From 1 April 2009 - £40 per tonne
From 1 April 2010 - £48 per tonne

Comment: The withdrawal of this exemption could be very costly for local authorities undertaking the development of brownfield land. This new landfill tax charge must now be factored into projected development costs.

Climate Change Levy

The rates of Climate Change Levy are to increase as follows-

• Electricity from £0.00456 per kwh to £0.00470 per kwh.
• Gas from £0.00159 per kwh to £0.00164 per kwh. .
• Petroleum or other liquid gas from £0.01018 per kg to £0.01050 per kg. .
• Other taxable commodities from £0.01242 per kg to £0.01281 per kg. .

The rate will increase on 1 April 2009

Comment: This increase will represent an additional cost to local authorities’ energy costs. Climate Change Levy relief continues to be available to bodies with charitable status, for example, Voluntary Aided schools and it will be to their advantage to ensure that such reliefs are implemented.

Smoking Cessation Products

The reduced rate of 5% will continue to apply to sales of over the counter smoking cessation products until further notice (The original measure was introduced in last year’s budget only until 30 June 2008). This includes all non-prescribed sales of patches, gums, inhalors and other pharmaceutical products held out for sale for the primary purpose of helping people to quit smoking.

See also Budget 2007

Please Contact Us if you wish to discuss any of the budget issues and how they might affect you.