Value added tax

Emergency Budget announcements

New registration and deregistration thresholds

With effect from 1 April 2010, the registration threshold will be increased from £68,000 to £70,000, and the de-registration threshold from £66,000 to £68,000. The threshold for registration and de-registration in respect of intra-community acquisitions is also increased from £68,000 to £70,000.

The main effect of the changes means that from 1 April 2010, an un-registered business must notify its requirement to register if taxable turnover (i.e. the aggregate of turnover subject to VAT the standard, reduced and zero rate) in the last 12 months has exceeded £70,000 or if it expects taxable turnover in the next 30 days to exceed that figure. However, the business will not have to register if it can demonstrate to HMRC that taxable turnover in the next 12 months will not exceed £68,000.

From the relevant date, de-registration can be applied for if annual taxable turnover falls below £68,000.

Reverse charge on emissions allowances

A new measure has been proposed to change the rules on the application of the reverse charge to combat missing trader intra-community (‘MTIC') fraud in goods, so that it also applies to services. This legislative change is necessary so that the Government can then require the reverse charge for emissions allowances.

The change will take effect from 1 November 2010, at which time the interim zero-rate for emissions allowances, introduced in July 2009, will be withdrawn. This legislation will also enable HM Revenue & Customs to introduce additional reporting requirements for services covered by the reverse charge, but at least for the time being, there would be no such requirements for emissions allowances.

Changes to the rules for 'Lennartz' accounting

As a result of the EU Technical Directive and an ECJ decision, changes to UK law are necessary as regards the extent to which ‘Lennartz' accounting is permitted for immovable property, boats and aircraft.

This form of accounting enables the buyer, who intends to use the asset for business and non-business purposes, to claim input tax in full when the asset is purchased then pay an amount of output tax deemed to relate to the extent of non-business use in any tax period in which the asset is so used. However, the ECJ case Vereniging Noordelijke Land-en Tuinbouw Organisatie v Staatssecretaris van Financien (C-515/07) and the Technical Directive (Council Directive 2009/162/EU) have shown that the UK has allowed Lennartz accounting where it should not have done.

The changes will ensure input tax is only permitted to the extent of any business use and the capital goods scheme will be amended to ensure fluctuations in non-business use, over the useful life of the asset, are reflected in adjustments. Those who are already using Lennartz accounting for certain assets will be required to continue to account for output tax on private use or completely unravel previous calculations. Furthermore, the current legislation on directors' accommodation will be repealed to ensure the VAT on all relevant costs is not allowable as input tax.

The implementation on the Technical Directive and the repeal of the directors' accommodation provisions will take effect on and after 1 January 2011 but the requirement for existing Lennartz users to carry on or unravel past calculations is treated as always having been in place.

Changes to place of supply rules for gas, heat & cooling

A new measure will affect suppliers, importers and VAT-registered recipients of natural gas, heat and cooling. It will also have an impact on providers and VAT-registered recipients of services consisting of access to, and use of, natural gas and heat and cooling distribution networks.

The measure will take effect on and after 1 January 2011. Currently, the place of supply of gas through the natural gas distribution system is where a wholesale customer is established or where the natural gas is consumed. Therefore, VAT-registered customers in the UK have to account for such supplies they receive from suppliers based abroad via the reverse charge mechanism. However, as it stands, there are no similar rules for supplies of heat and cooling. Consequently, the existing rules are to be amended to address that anomaly as follows:

- their scope will be extended to include supplies in all categories of natural gas pipeline, but also
- limited to supplies involving natural gas pipelines located in the EU or linked to pipelines located in the EU, and
- relief from import VAT will be extended to all natural gas imported via a network (which includes liquefied natural gas by tanker).

These amended rules will be extended to apply to heat and cooling supplied through networks.

VAT on certain postal services

The Government is proposing a change to certain postal services currently exempt from VAT. In effect, only Royal Mail Holdings PLC (‘RMH') is affected although certain recipients of their services will now have to pay VAT on relevant supplies. The plan is for the change to be brought into law through Finance Bill as early as possible in the next Parliament and for the changes to be effective on and after 31 January 2011.

The current exemption for postal services should only apply to public postal services and incidental goods supplies by RMH. The exemption will only apply to supplies of services made under a licence duty, including those where, pursuant to a licence duty, RMH allows private postal operators access to its postal facilities. In other words, the change will mean services that RMH is not required to make under a licence duty, such as those made by Parcelforce, will become standard rated, as will services supplied where the terms and conditions have been freely negotiated.

A further change of policy is also planned to extend the application of the zero rate for passenger transport services to a wider range of such services provided by RMH.

Publicity on this issue refers to the ‘USP' (universal service provider) i.e. the sole provider of such postal services in the UK, currently RMH.

Changes to fuel scale charges

In this year's Budget as usual, fuel scale charges (payable where vehicles are used partly for non-business purposes) have been changed to reflect fluctuations in fuel prices. The CO₂ bands have also been altered to maintain alignment with those used for direct tax purposes. The new charges must be used from tax periods starting on or after 1 May 2010. Now that the standard rate has reverted to 17.5 per cent, affected businesses should remember to calculate the VAT due by applying the fraction 7/47 to the VAT-inclusive scale charge published.

Fuel scale charges are based on the CO₂ emissions of vehicles and given for one month, quarterly and annual VAT returns. Sometimes, the CO₂ emissions figure will not be a multiple of 5. Where that is the case, the actual figure is rounded down to the next multiple of 5 in the table. Where vehicles run on two types of fuel, they will have two CO₂ emissions figures but for the purpose of applying the scale charge, the lower figure should be used.

Change to the definition of a 'qualifying aircraft'

Businesses involved in supplying aircraft, parts and services for aircraft and aircraft operators should be aware that the definition of a ‘qualifying' aircraft i.e. one which qualifies for zero-rating, will change shortly.

VATA 94 Schedule 8 Group 8 applies the zero rate to the supply, repair or maintenance of a qualifying aircraft along with the modification or conversion of such an aircraft so long as it still remains a qualifying aircraft after the work is complete. The definition of a qualifying aircraft is currently based on weight and usage in that to qualify, its weight must not be less than 8000kg and it must not be designed or adapted for recreation or pleasure use, but from 1 September 2010, the zero rate will only apply to aircraft operating for reward mainly on international routes.

The change is necessary in the UK in order to bring national legislation into line with the EU Principal VAT Directive.