Indirect Tax
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be withdrawn with effect from 1 April 2009.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:
|
Electricity
|
£0.00470
|
|
Gas supplied by a gas utility or any gas supplied in a gaseous
state that is of a kind supplied by a gas utility
|
£0.00164
|
|
Any petroleum gas, or other gaseous hydrocarbon, supplied in a
liquid state
|
£0.01050
|
|
Any other taxable commodity
|
£0.01281
|
|
In addition, electricity generated from coal mine methane will
no longer be exempt from CCL with effect from 1 November
2008.