Value added tax (VAT)
| From | 4 Jan 2011 | 1 Jan 2010 |
|---|---|---|
| Standard rate | 20% | 17.5% |
| VAT fraction | 1/6 | 7/47 |
| Reduced rate | 5% | 5% |
| Current Turnover Limits | ||
| Registration - last 12 months or next 30 days over | £73,000 from 1 April 2011 | |
| Deregistration - next 12 months under | £71,000 from 1 April 2011 | |
| Annual Accounting Scheme | £1,350,000 | |
| Cash Accounting Scheme | £1,350,000 | |
| Flat Rate Scheme | £150,000 | |
Online registration and online filing
Following the Minister for the Cabinet Office's statement of 23 November 2010 on the “Digital Agenda”, subject to consultation on the detail, the Government will mandate online VAT registration, de-registration and variations with effect from 1 August 2012.
Also subject to consultation, the Government plans to remove the VAT registration threshold for non-established businesses from 1 August 2012. The removal of the threshold will oblige all non-established businesses that make taxable supplies in the UK to register and account for VAT in the UK.
The Government will also put forward regulations which will require all remaining VAT customers to file their VAT returns online and pay electronically for periods beginning on or after 1 April 2012. The consultation on the measures outlined above will take place later in 2011.
Low value consignment relief (LVCR)
The Government will reduce the LVCR limit from £18 to £15 from 1 November 2011 to address unfair competition arising from what many consider abusive practice by major on-line retailers. LVCR applies to low value items entering the UK free of VAT. However, some UK on-line retailers have taken advantage of this and made use of the Channel Islands to supply UK consumers with goods VAT free.
The system works in relation to orders taken from UK customers; because of industry licensing regulations, CDs and DVDs are sourced in the UK, shipped to the Channel Islands as a zero rate export, and posted back to the UK customer VAT free under LVCR. Because the Channel Islands are part of the UK postal system, the additional shipping costs are significantly less than the VAT saving and the retailers are therefore able to charge a lower price for the product.
The Government will also liaise with the European Commission to limit the scope of the relief, and plans to reduce the LVCR threshold further if discussions with the European Commission do not produce a workable solution.
Splitting of supplies – anti-avoidance
Measures have been introduced to deal with the artificial splitting of supplies including printed matter.
The measures apply where the “ancillary” printed matter is supplied together with services subject to a different rate of VAT, and arrangements are made for the supply of printed matter to be made by a different supplier. In this scenario, the zero-rating that would normally apply to books and journals would not apply, and the printed matter would follow the same liability as the main supply.
Change in VAT treatment of business samples and gifts of small value
Following the European Court of Justice (ECJ) decision in the EMI Group Ltd case, the restriction allowing only one product sample to be supplied to one person free of VAT has been removed. HMRC's policy now states that where businesses provide samples of their products free of charge to individuals for marketing purposes, none of the samples will be liable to VAT. HMRC will accept retrospective claims for any overpaid VAT. Claims will be subject to the normal four-year time limit.
Refunding non-business VAT costs incurred by academies
From 1 April 2011, the Government will introduce legislation to encourage the expansion of academies. This will enable academies to recover VAT incurred on their non-business activities (such as the provision of free education). This tax neutral effect will put academies in the same position as schools under local authority control, which currently have their non-business VAT costs refunded through the special refund scheme for local authorities. Refunds can be claimed by academies through their VAT returns. Academies not registered for VAT can make a separate claim similar to the procedure currently used by non-VAT registered parish councils.
Future measures
The Chancellor announced that the Finance Bill 2012 will include changes to the VAT status of public bodies and anti-avoidance provisions to combat VAT fraud in respect of road vehicles brought into the UK. This is to be introduced from 2013.
The Chancellor also announced a consultation on the proposed cost-sharing exemption by organisations such as charities, universities and housing associations.
