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Registration Limit
The registration limit has been
increased to £61,000, and the deregistration limit to £59,000.
Although the Chancellor indicates that so many businesses can now
opt out of the VAT ‘net,’ most prefer to stay VAT registered. So
much so that some 20% of all registrations trade below the current
threshold.
Fuel Scale Charges
These change from the first VAT Return beginning on or after 1 May
2006, and represent an increase of around 10%. The charge for a
petrol car starts at £91.00 per month gross, or £13.55 VAT. This
reflects a significant amount of private motoring, and will be
potentially costly for many businesses. It is worth looking at the
alternatives to using the petrol scale charge – keep mileage
records; or choose not to claim any input tax.
‘Reverse’ charge for goods at risk
from MITC fraud
HMRC have long struggled to restrict the impact of missing trader
Intra-Community (MITC) fraud. After the defeat in the European Court
in the Bond House case, existing legislation was ineffective. The
new rules will affect only specified goods, ie: mobile telephones,
computer chips, where the value of the supplies made to an
individual customer exceeds £1,000. This will mean genuine retail
purchases will be excluded from the rules. The new s55A is blatantly
called “Customers to account for tax on supplies of goods of a kind
used in missing trader intra-community fraud.” One of the problems
with legislation aimed at fraudsters is that it can also affect
genuine businesses. If you are involved in the wholesale of computer
chips or mobile telephones, then you will need to act smartly to
alter your accounting procedures.
Treatment of credit vouchers
Further changes are being made to the VAT treatment of vouchers,
such that, where any goods or services are vatable, the vouchers
will attract VAT. The overall effect of the various changes will
prevent retailers (and companies dealing in vouchers) from reducing
their VAT liability. Telephone cards are amongst those vouchers
targeted.
Partial Exemption
Where a Client changes to a Special Method, he will have to make a
clear statement that to the best of his knowledge and belief it
produces a fair and reasonable recovery of VAT. This will mean that,
if HMRC take a different view, they will be able to set aside the
method, and recalculated past Returns.
Annual Accounting Scheme
The take up of this scheme has been poor. The turnover limit has
been increased to £1.35million. The scheme, for which apparently 1
million VAT registered businesses are now eligible, provides for VAT
to be paid in nine monthly instalments, followed by a balancing
payment, each year. HMRC are clearly seeking to improve the take up
of the scheme. For some businesses, the Annual Accounting scheme
will be worth considering. For example, if your business is
seasonal, you may wish to time your Annual Accounting year to end
shortly before your busy period.
Land & Property – Rewrite of Sch 10,
etc.
Land and property have become arguably the most complex areas of
VAT. Sch 10 of the VAT Act 1994 is the main section dealing with the
option to tax. HMRC have been consulting over its contents and its
complexity. The draft version I have seen is certainly an
improvement on the original!
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The rewrite includes some
genuine changes. Most significant is the provision for belated
notification of the option. This follows a concession, which has
been in place for several months already.
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To balance the concession, HMRC
will have the power to refuse permission to opt if they consider
there would not be a fair and reasonable attribution of input
tax.
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The new rules provide a
‘purported’ option, which covers those situations where a
taxpayer has charged VAT on rent without having made a formal
option. Subject to HMRC approval, this will be able to be
treated as a valid option.
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The new rules provide more
explicitly for the option to tax to be disapplied where the
purchase is for a D-I-Y dwelling.
There has also been talk of broader
changes, possibly in HMRC practice, rather than in law, for the
benefit of owners of large land and property portfolios. There will
be such concepts as ‘global’ options and ‘universal’ options. These
will mean that a single notification can be made to HMRC, rather
than separate notifications for each property. Where a trader wishes
a revoke an option, the time limit is to be increased from the
existing 3 months. The VAT 1614 form, by which an option is
notified, has also been changed.
May 2006
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