Budget 2009
2008 was full of significant changes for VAT affecting both the private and public sectors, for example, the New Option to Tax rules, increased Voluntary Disclosure limits, the Fleming & Condé Nast deadline, the temporary reduction to the Standard Rate and, specifically for certain public sector bodies, the Moratorium on the 5% Calculation. Perhaps then, given the bigger financial picture which has heightened interest in this (2009) year’s budget, it is not surprising that VAT has had a relatively low profile.
That said, preparing for the increase (or reversion) in the standard rate of VAT to 17.5% from 1st January 2010 will once again be a challenge, but not one to which we can offer the excuse of not being prepared.
The following sets out the VAT, and other Indirect Tax, measures announced in the Budget 2009 of relevance to local authorities:
The Budget – 22nd April 2009 View Customs and Excise budget notes here
Standard Rate of VAT – 17.5% from 1st January 2010
As announced at the 2008 Pre-Budget Report, on 1 December 2008 the standard rate of VAT was reduced temporarily to 15 per cent. The rate will return to 17.5 per cent on 1 January 2010. Legislation will be introduced to counter schemes which purport to apply the temporary rate after 31 December 2009, for example, by issuing a VAT Invoice or receiving payment before the date of the change.
Comment: There has been speculation that the reversion of the standard rate could be to a higher percentage. There is of course no guarantee that this will not still happen.In warning of impending legislation to counter the use of the 15% rate for supplies after 31st December, HM Revenue & Customs (HMRC) are to introduce targeted legislation within the Finance Bill 2009 to discourage businesses seeking to artificially advance the tax point for supplies which should attract the 17.5% rate. Local authorities could be affected in circumstances, for example, where they issue VAT invoices where payment is not due for at least six months.
VAT Registration and Deregistration limits
The VAT registration threshold is increased to £68,000 per year from 1 May 2009 and the Deregistration threshold to £66,000.
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.
Fleming and Condé Nast Claims
The Budget report included the comment that: “The forecast also includes a significant provision for additional repayments in 2009-10 and 2010-11 relating to a judicial ruling on the three-year time limit for reclaiming overdeclared or underclaimed VAT for tax periods before May 1997".
Comment: The Treasury clearly expects to be paying out for another two years. Let’s hope that any necessary checks on local authority claims will not take this long, particularly for those which have made provisions in their 2008/2009 accounts.
Option To Tax – Automatic permission
As announced at the 2008 Pre-Budget Report, from 1 May 2009, a new Automatic Permission Condition will be introduced to make it easier for taxpayers to opt to tax otherwise exempt supplies of land and property.
Comment: HMRC are due to publish an Information Sheet to further explain the new condition. Any measure to allow local authorities to opt to tax without first having to seek permission from HMRC is to be welcomed.
Anti-Avoidance
The Budget announces that HMRC will soon publish a “Spotlight” on tax avoidance with details of a number of avoidance schemes that will be challenged when encountered.
To continue the fight against Missing Trader Intra-Community (MTIC) fraud the Government (in March 2009) secured European Council support for an extension to the UK’s targeted reverse charge derogation until April 2011.
Comment: Local authorities can find, quite unexpectedly, that their arrangements trigger anti-avoidance regulations. Greater clarity on what HMRC perceive as “avoidance schemes” may assist in ensuring that proposed arrangements do not fall foul of the regulations. It would not be expected that many local authorities would be affected by MTIC.
Reduced Rate (5%) extended
From 1st July 2009 the reduced rate of VAT will be extended to include child car seat bases.
Interest Rates – payments by and to HMRC
Legislation will be made to allow the introduction of a harmonised interest regime and aligned penalties regimes for late filing, across the taxes and duties administered by HMRC, starting with interest and penalties on late paid PAYE from April 2010. The new provisions will be brought into effect by Treasury Orders from the date specified in the Orders. In all cases where HMRC currently charges and pays out interest, rates across taxes will be harmonised from Royal Assent to Finance Bill 2009.
Comment: We will provide further comment on this as, and when, the information becomes available.
Publishing the names of deliberate tax defaulters
Legislation will be introduced in Finance Bill 2009 enabling HMRC to publish the names and details of individuals and companies who are penalised for deliberate defaults leading to a loss of tax of more than £25,000. Names will not be published of those who make a full unprompted disclosure or a full prompted disclosure within the required time.
Details will be published quarterly within one year of the penalty becoming final and will be removed from publication one year later.
Comment: Under the New Penalty Regime deliberate errors will be subject to penalties of up to 100% of the tax loss. The above ‘naming and shaming’ of the worst offenders is a further step by HMRC to highlight their aim to encourage individuals, companies and other VAT registered bodies to pay the right amount of tax at the right time.
Cross Border Trading
Changes to modernise cross border trading will be introduced over a 3 year period from 1 January 2010 and will include:
- Changes to the place of supply rules for cross border supplies of services. More information is in Budget Note 75.
- Completion of quarterly EC Sales Lists. More information is in Budget Note 76.
- A new electronic VAT refund procedure for cross border supplies of services. More information is in Budget Note 77.
The result for UK business customers is that they will be liable to account for UK VAT on most services provided by their overseas supplier under the reverse charge provisions, rather than the supplier charging VAT.
The difficulty for public bodies has been that suppliers in other EU member states will often not recognise them as being ‘business’ customers and will hence seek to charge their own country’s VAT – notwithstanding the decision of the European Court in respect of Kollektivavtalsstiftelsen TRR Trygghetsrådet (C-291/07).
See also Budget 2008
Please Contact Us if you wish to discuss any of the budget issues and how they might affect you.