This Newsletter summarises the changes to Indirect Taxes following the Chancellor’s Budget of 23 March 2011. No significant changes were made but the main points are outlined below.

VAT –  The Key Changes: 

VAT Registration Thresholds
The VAT Registration threshold is increased to £73,000 with effect from 1^st April 2011. The de-registration threshold also increases to £71,000 at the same time. The registration and de-registration thresholds for acquisition of goods from the EU are also increased to £73,000.  

VAT Low Value Consignment Relief
Currently, there is relief from VAT for goods imported from outside the EU where the value is below £18. This value is to be reduced to £15 with effect from 1 November 2011.

This reduction will affect businesses and individuals purchasing items from outside the EU e.g. CD’s from the Channel Islands.

The Government intends to raise the matter with the EU to limit the relief even further in 2012. The EU Directive allows the VAT free importation of goods from outside the EU when the value is below €10 (£9).

VAT Change to Business Samples
Following a case in the European Court of Justice HMRC’s policy relating to business samples will be changed from the date of the Royal Assent of the Finance Bill 2011. From that date any sample of a product that is given away free by a business will not create a VAT charge. This will apply even if a number of samples are given to the same person.

This change will assist producers of goods that give their products as samples for advertising purposes so that no VAT is due irrespective of the number of samples given to the same person.

There is no change to the £50 value limit for provision of a business gift e.g. at Christmas.

VAT Zero-rating: splitting of supplies
The VAT Act 1994 relating to Printed Matter will be changed so that there will be no zero rated supply where there is a contract with a customer with two separate, but connected businesses, for the supply of zero rated printed matter and a separate supply of a service. HMRC claim that this clause prevents tax avoidance schemes designed to obtain a tax treatment that would apply if separate supplies were being made, when in substance the business is making a single supply. In particular they take the view that such arrangements aim to attribute a value for tax purposes to something for which no charge is being made commercially. European and domestic judgments have stated in clear terms that supplies that comprise a single service from an economic point of view should not be artificially split.

This change would apply in the following example: a training course is provided by Company A but a connected Company B provides the manuals which are ancillary to the training service.

VAT Fuel Scale Charges
The VAT fuel scale charges for taxing the private use of road fuel paid for by a business are being increased with effect from 1^st May 2011. The new rates will be on our website shortly.

Changes previously announced:
Online VAT registration – it is proposed that VAT registration/de-registration and notification of changes will need to be submitted online from 1 August 2012.

Online VAT Returns – With effect from 1 April 2012, any businesses that are currently filing VAT returns on paper, i.e those with turnovers of less than £100,000, will be required to file and pay their returns electronically.

 Other Indirect Taxes

 Tobacco Products – Duty Up
In line with the Government’s commitment to promote health objectives, the Chancellor has announced an increase in the rates of duty for tobacco products. This will affect UK manufacturers and importers of tobacco products into the UK. The result is that tobacco products will cost more to the consumer with effect from 6pm on 23 March 2011.

Fuel – Duty Rates Down and Up! 
As a reaction to soaring pump prices, the Chancellor has agreed to abolish the fuel duty escalator to ease the pressure on motorists. This means that the increase of 1pence per litre per year, over the RPI, through to 2015, will not be applied, unless the cost per barrel falls below $75. The escalator is to be replaced with a fair fuel stabiliser.

The main fuel duty will be cut by 1 pence per litre from 6pm on 23 March 2011.

On 1 January 2012, the main fuel duty rate will increase by 3.02 pence per litre, and the 2012 – 13 increase in fuel duty will be implemented on 1 August 2012.

Biodiesel made from waste cooking oil will continue to benefit from a 20 pence per litre duty differential until 31 March 2012.  

High and Lower Strength Beers – Duty Up and Down
A new High Strength Beer Duty will be introduced for beers with a strength of more than 7.5abv which is either manufactured in or imported into the UK. It will be levied in addition to the existing general beer duty at 25%.

The new legislation will also introduce a reduced rate of general beer duty for lower strength beers where the abv level is more than 1.2% and not exceeding 2.8%abv. The reduced rate will be 50% of the general beer duty.

Small Brewery Beer relief, where applicable, will still be available for beers with an abv level of between 2.8% and 7.5%

Green Taxes

 Climate Change Levy (CCL) Exemption: Recycling Processes
The existing exemption from CCL for recyclers of aluminium and steel will be suspended from 1 April 2011 unless a new State aid approval is obtained before then. At present the exemption is an approved State aid, but this expires on 31 March 2011 and further extension of the exemption will only be granted once the European Commission (EC) again approves the aid.

Readers should note that if the EC grant retrospective approval, HMRC will back-date the exemption to 1 April 2011 and intend to refund CCL paid. 

Climate Change Levy Exemption: Certain Forms of Transport
The exemption from the CCL for taxable commodities used in certain forms of public transport is an approved State aid. The specific forms include rail freight and public passenger rail services where the operator does not hold a PSO (Public Service Obligation).

The State aid approval expires on 31 March 2011 and HMRC will suspend the exemption if re-approval for the State-aid is not received prior to this date.

Readers should again note that if the EC grant retrospective approval HMRC will back-date the exemption to 1 April 2011 and intend to refund CCL paid.

Carbon Price Floor
A carbon price floor will be introduced from 1 April 2013. This will be introduced broadly in line with the consultation proposal made in December 2010.

From April 2013 supplies of fossil fuels used in most forms of electricity generation will become liable to the climate change levy or fuel duty. There will be ‘carbon price support rates’ for CCL which are set to rise over the following three years. The purpose of this measure is to encourage additional investment in low-carbon power generation and certainty to the carbon price.  

Climate Change Levy: Reform of Climate Change Agreements
Climate Change Agreements (CCA) reduces the rate of CCL due for certain energy intensive businesses in return for them meeting challenging energy efficiency or carbon reduction targets.

With effect from 1 April 2011 the reduced rate will be amended from 20% to 25% for all taxable commodities. The further announcement today will extend the scheme to 2023 as well as amending the reduced rate of CCL on electricity only from 35% to 20% with effect from 1 April 2013 (this will help mitigate the impacts of the carbon price floor (see item above).

A consultation will be published later this summer to look at ways of simplifying the scheme. 

The proposed increase to rate of Aggregate Levy to £2.10 per tonne from 1 April 2011 is to be postponed until 1 April 2012.

Aggregates levy is imposed on the exploitation of quarried aggregates and this postponement of the increase should assist the construction industry.  

 If you would like to discuss any of the issues in today’s budget get in touch: vat@thevatconsultancy.com or call on 01962 735350.