Emergency Budget June 2010
VAT: Change to the Standard Rate
As broadly anticipated, the standard rate of VAT is to be increased from 17.5% to 20%, with effect from 4 January 2011. This deferred date will give both businesses and consumers an opportunity to plan effectively for the change (subject to Anti-Forestalling Legislation).
VAT: Change to the Standard Rate: Anti-Forestalling Legislation
Targeted legislation will be introduced in Finance Bill 2010 to counter arrangements that purport to apply the 17.5% rate to goods or services to be delivered or performed on or after 4 January 2011.
The legislation will have effect for transactions on or after 22 June 2010 and will provide for a supplementary charge to VAT of 2.5% where the customer cannot recover all the VAT charged on the supply and where certain conditions are met.
These rules mirror the anti-forestalling legislation introduced when the VAT rate reverted to the 17.5% rate in January. See BN 44 and Guidance Notes issued by HMRC.
VAT: Change to the Place of Supply of Gas, Heat and Cooling
With effect from 1st January 2011, the rules on the place of supply for natural gas, electricity and heating and cooling supplied through networks will be amended. From this date natural gas pipelines will be included as well as heat and cooling supplied through the networks. This was announced in the March Budget and has been reconfirmed.
Further details can be obtained in BN 40.
VAT: Lennartz Accounting
VAT recovery on land, property, boats and aircraft will be restricted only to business use of the asset, excluding any private use by the taxpayer or the taxpayer's staff. Changes to the Capital Goods scheme will also be introduced so that it will take account of changes in private use over
subsequent years. This will make the VAT legislation relating to directors' accommodation redundant.
These measures will be introduced with effect from 1st January 2011 and further information can be found in BN 42.
VAT: Zero-Rating of "Qualifying" Aircraft
New VAT rules will apply to the importation and sale of aircraft. Currently, the VAT liability of an aircraft is based on its weight and usage. From 1st January 2011, aircraft will be standard rated where they are supplied to businesses, other than airlines for use primarily on international routes. This change was announced in the March Budget but the implementation date has now been delayed to January. For further information see BN 39.
VAT: Postal Services: Change to VAT Liability
The introduction of VAT to certain postal services provided by the Royal Mail was confirmed in the March Budget and this has been reconfirmed in a further Budget Notice. The standard rate of VAT will be charged with effect from 31 January 2011 on supplies of services that have been freely negotiated and on services that are provided outside of the Royal Mail's licensed duty. See BN 41 for further information.
VAT: Flat Rate Scheme Increase in Percentages
New flat rate percentages have been issued for use on and after 4 January 2011 to reflect the increase of the standard rate of VAT.
The exit thresholds have also been increased from 4 January 2011 to £230,000 to reflect the VAT rate change. These new rates are highlighted in BN 45.
Review of HMRC powers, deterrents and safeguards
New penalties will be applied for businesses that do not file tax returns, or pay their tax liability, in full by the due date. The new penalties apply to VAT and insurance premium tax as well as excise duties, landfill tax and aggregate and climate change levies. The implementation dates for the new penalties will be announced sometime in the Autumn. For further information see BN 37.
Other Indirect Taxes
Landline Duty
A new Landline duty was announced in the March Budget but this planned introduction has now been withdrawn. Landline Duty is therefore scrapped!
Excise Duty Penalty Regime
Under the review of HMRC powers the majority of taxes now have a revised record keeping and penalty regime but the Excise Duties are out of step. Excise Duties consist of tax on alcohol, tobacco, energy products, gambling and air passenger duty. From 1 April 2012 time limits for HMRC to make an assessment, and for taxpayers to make claims, will be changed, following a transitional period, so that all taxes are aligned to 4 years.
Changes to record keeping requirements, the production of information and HMRC's powers of inspection will be changed from 1 April 2011. See BN 38 for further information.
Excise Duty: Cider
The duty rates for cider have been reduced with effect from 30 June 2010.
Insurance Premium Tax (IPT): Increase in Rates
Insurance Premium Tax (IPT) is a tax on insurance premiums. The standard rate applies to property, motor and medical insurance and this will rise to 6%. The higher rate applies to travel insurance and to certain other insurance such as extended warranties and this rate will increase to 20%. Both rates will increase with effect from 4 January 2011. See BN 19 for further detail.
For full details of all the Budget Notices click here
