Indirect taxes
The Government has reacted to a recent Court case challenging its approach on the time limits for reclaiming VAT. Businesses who have overpaid output VAT in the period to 4 December 1996 and underclaimed input VAT in the period to 1 May 1997 will have a transitional period (up to 31 March 2009) to submit refund claims.
In addition the staff hire concession, which allows employment businesses to charge VAT only on the margin on their supplies, will be withdrawn with effect from 1 April 2009.
The VAT exemption for fund management will be extended , from 1 October 2008, to cover UK-listed investment entities and certain overseas funds
VAT − Announcement of transitional period for claims
Employment business - withdrawal of concession
VAT - amendment to the exemption for fund management
Changes to VAT fuel scale changes
Increased turnover thresholds for VAT registration and deregistration
New Aviation Duty replacing Air Passenger Duty (APD)
Property - option to tax change
Voluntary Disclosures - increased limits
Green tax changes
Landfill Tax (LFT)
Aggregates Levy (AGL)
Climate Change Levy (CCL)
VAT − Announcement of transitional period for claims
The Chancellor has announced that the Finance Bill will introduce a new transitional period, during which eligible businesses are invited to make claims for VAT refunds.
Recent case law, both in the European and UK Courts, has highlighted that the introduction of the three year cap on claims in 1997 was flawed. The Courts held that where such changes are made to taxpayers' rights to make a claim, the tax authority must provide a period of time in which businesses affected by the change can review their records and submit claims. HM Revenue & Customs (HMRC) had tried to resolve the position by retrospectively imputing a transitional period, but that was also regarded as unacceptable. As a result, businesses will now have until the 31 March 2009 to review their records and submit retrospective claims for over-paid or under-claimed VAT.
In addition to the above, HMRC has been considering the issue of how to recover VAT over- paid to tax payers. Currently, HMRC can only issue an assessment to recover VAT from a tax payer within one year of the full facts coming to their attention. This has caused a problem where the facts have remained constant, but a change in the interpretation of the VAT law has led to a different outcome. The Chancellor has therefore announced that with effect from Royal Assent, HMRC will have a period of two years from the end of the VAT period in which the repayment was made in which to make an assessment.
If businesses have over-paid output tax between 1 April 1973 and 4 December 1996 or under-claimed input tax between 1 April 1973 and 1 May 1997, claims should be submitted before the new deadline of 31 March 2009.
Employment business - withdrawal of concession
Employment businesses supplying temporary workers are currently able to choose whether to charge VAT on the staff costs charged to their clients. This concession is enormously beneficial to industries that hire temporary workers and are unable to recover all of the VAT they are charged, such as financial services and the charity and not for profit sectors.
HMRC has been carrying out a review and have decided, not unexpectedly, to withdraw the concession with effect from 1 April 2009. From that date, employment businesses that pay their workers directly will be required to account for VAT on the whole of the consideration they receive from their clients. They will therefore need to ensure that their contracts allow them to pass on this cost. Many of their clients will be adversely affected as they may not be able to recover the VAT charged.
HMRC expect that the change will cost UK businesses an additional £125 million per annum.
VAT − amendment to the exemption for fund management
The measures announced in the Budget extend the scope of VAT exemption for fund management, and are likely to be met with a mixed response from the investment management industry.
With effect from 1 October 2008, the management of venture capital trusts and closed-ended entities − such as investment trusts and real estate investment trusts whose shares are included in the UK Listing Authority Main Official List − will fall within the VAT exemption. This change is good news for such funds, as it will mean that the amount of irrecoverable VAT that they incur will be reduced.
What will be of concern to UK fund managers is the inclusion in the VAT exemption of the management of certain offshore funds. Although managers of these funds do not currently charge UK VAT on their services, they are nevertheless able to recover the related UK VAT that they incur. The change announced today will mean that UK fund managers managing the funds affected by this measure, will no longer be able to recover the VAT incurred on costs relating to the provision of their service.
In summary, UK funds will welcome this change. However, fund managers with mandates to manage affected funds will potentially either need to increase their base charge to take into account the irrecoverable VAT they will incur, or suffer a decrease in profit.
Changes to VAT fuel scale charges
The VAT fuel scale charges for taxing the private use of road fuel have been increased. This is to reflect changes in fuel prices and to ensure that the table of CO2 bands remains aligned with the equivalent tables used for direct tax purposes.
The new rates must be used for VAT return periods beginning on or after 1 May 2008.
Increased turnover thresholds for VAT registration and deregistration
New registration and deregistration taxable turnover thresholds have been announced for VAT. These will take effect from 1 April 2008.
The threshold that determines whether a business must be registered for VAT will increase from £64,000 to £67,000, while the threshold determining whether a business may apply to cancel its VAT registration will be increased from £62,000 to £65,000.
The registration and deregistration threshold for the acquisition of relevant goods from other EU member states will also be increased from £64,000 to £67,000.
New Aviation Duty replacing Air Passenger Duty (APD)
A new Aviation Duty will be introduced in November 2009 to replace APD. Like APD, the new tax will be the responsibility of HM Revenue and Customs.
Whilst APD was chargeable on a per passenger basis, the new aviation duty will be chargeable on a per plane basis.
Property - option to tax change
From 1 August 1989, businesses can elect to charge VAT on the supply of most commercial land and property. The main benefit of this is that it enables the VAT incurred on the related costs to be recovered. It does, however, mean that VAT is charged on sales proceeds and rental income. As not all purchasers or tenants are able to recover the VAT charged to them, there may be circumstances where it would be commercially beneficial if the option to tax could be revoked.
Current legislation provides for the possibility of elections being revoked after 20 years. Therefore, from 1 August 2009 it will be possible to revoke options made at the introduction of the legislation. New legislation will shortly be introduced setting out the procedures to be followed if an election is revoked.
A number of other changes will be made to the very complicated existing legislation, with the object of improving the administration of the option to tax regime.
We recommend that property owners review their portfolios to consider whether it would be appropriate to revoke options that when it becomes possible to do so.
Voluntary Disclosures - Increased limits
The Chancellor has announced a welcome increase in the limits for the disclosure of errors made on VAT, Insurance Premium Tax and other indirect tax returns.
Under current legislation, all errors exceeding £2,000 need to be separately disclosed rather than accounted for by way of an adjustment to a return. This limit took no account of the size of a trader’s business, and so placed an unnecessary compliance burden on larger businesses.
The announcement today means that for accounting periods beginning after 1 July 2008, traders will only be required to disclose errors where they exceed the greater of:
- £10,000; or
- 1% of turnover up to a limit of £50,000.
Green Tax Changes
Landfill Tax (LFT)
It was confirmed today that the standard rate of LFT will increase from £24 per tonne to £32 per tonne from 1 April 2008. It was also announced that the rate will increase by a further £8 per tonne in 2009. This rate of increase is expected to continue until 2011.
Legislation will also be introduced this year to phase out the exemption from LFT for waste disposed to landfill as a result of the reclamation of contaminated land. Applications for certificates of exemption will no longer be accepted from 1 December 2008. In addition, any certificates held after that date will expire on 1 April 2012. Developers and anyone involved in the reclamation of contaminated land will have to commence work and obtain certification prior to 1 December 2008, and ensure that the works are completed before 1 April 2012 to qualify for this relief.
For businesses registered for LFT - which make contributions to environmental bodies registered under the Landfill Communities Fund - the maximum credit for their contributions that can be claimed against their annual landfill tax liability will be reduced from 6.6% to 6.0% from 1 April 2008. Whilst this is a reduction in percentage terms, the significant increase in the standard rate of LFT means that actual contributions are likely to rise by up to £5 million in the coming year.
Aggregates Levy (AGL)
It was confirmed today that the rate of AGL will rise from £1.60 to £1.95 per tonne from 1 April 2008, and rise again to £2.00 per tonne with effect from 1 April 2009.
Climate Change Levy (CCL)
The Chancellor will increase the rates of CCL in line with inflation. From 1 April 2009 taxable commodities will be charged at the following rates:
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In addition, electricity generated from coal mine methane will no longer be exempt from CCL with effect from 1 November 2008.