The Budget 2011 commentaries - VAT & other indirect taxes
The commentaries below are written in general terms. Details can also be found in our downloadable Budget Report brochure. You are strongly recommended to seek specific advice before taking any action based on the information given, both in the commentaries and in the publication.
VAT registration limits
The annual turnover limit beyond which compulsory VAT registration is required will be increased from £70,000 to £73,000.
The turnover limit which determines whether a business may apply for deregistration will be increased from £68,000 to £71,000.
The registration and deregistration limits for acquisitions of goods from other EU Member States will be increased from £70,000 to £73,000.
These changes are all effective from 1 April 2011.
Comment: These changes are slightly higher than the usual £1,000 or £2,000 per annum increments over the last decade.
VAT low value consignment relief
Low value consignment relief (LVCR) is a relief that allows items costing less than £18 to be imported into the UK from outside the EU free of import VAT. The Government has reduced the threshold from £18 to £15 from 1 November 2011. The Government will also explore options to further reduce the scope of the relief, in conjunction with the EU, and will introduce further measures in 2012 if agreement cannot be reached.
Comment: It remains to be seen how successful the Government will be in its discussions with other EU member states, but this announcement is likely to disappoint the many UK businesses who lobbied the Government to remove the relief altogether. The use of the LVCR by large numbers of businesses, including multinational firms, has allowed these businesses to sell goods over the internet free of VAT to UK customers, giving retailers in the UK a significant disadvantage as they had to charge VAT on the same products. It is difficult to see how a reduction of £3 will substantially affect the offshore businesses that apply this relief.
VAT grouping concession
The Government will introduce legislation to allow the value of an anti-avoidance tax charge that applies to certain services ‘imported’ within UK VAT groups to be capped so that it only applies to the value of services brought in from external suppliers.
Comment: This is not a new measure – it replaces an extra statutory concession which referred to Schedule 5 of the VAT Act and which was repealed following the changes to the place of supply rules on 1 January 2010.
Online VAT registration and VAT returns
The Government has announced that from 1 August 2012, online filing will be mandatory for all applications for VAT registration or de-registration, and for any notification of changes to the business. Other changes will include removal of the VAT registration threshold for businesses not established in the UK.
In addition, online filing of VAT returns and electronic payments for VAT will become mandatory for all VAT registered businesses. This will apply to VAT return periods beginning on or after 1 April 2012. At present, this is mandatory only for businesses with a turnover in excess of £100,000 per annum.
Comment: This was anticipated following the changes introduced in April 2010, where businesses with a VAT exclusive turnover of £100,000 or more, and customers newly registering for VAT (whatever their turnover) were legally required to file VAT returns online and pay any VAT due electronically. It is hoped that this will improve the processing time at HMRC and reduce the delays often experienced in relation to VAT registration applications.
Fuel scale charges
With effect from 1 May 2011 new scale charge rates will be introduced to reflect changes in fuel prices. The new fuel scale charges will be updated in HMRC Notice 700/64 which should be available shortly from HMRC's website and the National Advice Service.