Value added tax

Changes to VAT registration and VAT deregistration thresholds

From 1 April 2011, the taxable turnover threshold, which requires a person to register for VAT, will be increased from £70,000 to £73,000 per annum. The threshold below which a VAT registered person may apply to deregister will be increased from £68,000 to £71,000 per annum, and the relevant registration and deregistration threshold for Intra-Community acquisitions will also be increased from £70,000 to £73,000 per annum.

Online VAT registration and similar measures

From 1 August 2012, online registration for and deregistration from VAT, and the notification of changes, will become compulsory for all. Furthermore, VAT-registered businesses with a VAT exclusive turnover under £100,000 per annum will be required to file returns online from 1 April 2012. Since April 2010, this requirement has only applied to those with an annual, VAT exclusive turnover, exceeding £100,000 and newly registered businesses. Other changes will include the removal of the VAT registration threshold for businesses not established in the UK. Further consultation documents on these issues are expected in June 2011.

Fuel scale charges

As usual, changes have been made to fuel scale charges and the new rates are applicable to VAT return periods starting on or after 1 May 2011. The new Fuel scale charges rates can be found on our website.

Changes to low value consignment relief

The Finance Bill will propose the introduction of legislation affecting low value consignment relief ('LVCR'). The proposal is to reduce the value below which goods imported into the UK from outside the EU are free of VAT from £18 to £15. It will apply from 1 November 2011. Furthermore, the UK Government, along with the European Commission, will consider ways of limiting the relief, which will include the possibility of seeking derogation from the relevant EU rules. If this collaboration does not produce a workable solution, there may be a further reduction of the threshold in the 2012 Budget.

Diplomatic privilege

It has been announced already that legislation will be introduced in Finance Bill 2012 regarding diplomatic privileges. The proposal will give the power to enable secondary legislation to be used to provide indirect tax and duty reliefs for diplomatic missions, international bodies, visiting NATO forces and European research infrastructure consortiums (ERICs). Until now, Extra Statutory Concessions ('ESC') have been used for the first three of these, but that practice cannot continue as clarified in the Wilkinson case, decided in the House of Lords. The inclusion of ERICs in this legislation will create the UK tax relief required by the EU ERIC Regulation.

Statutory effect for ESC affecting VAT group registrations

It has been announced that legislation will be introduced in Finance Bill 2012 to give statutory effect to an arrangement currently covered by ESC 3.2.2.  This allows the value of an anti-avoidance tax charge triggered in UK VAT groups to be capped at the value of services purchased by an overseas VAT group member and recharged to the UK. If the concession did not exist, the group would have to pay output VAT on the total value of the supply from the overseas group member to the UK member, including any services sourced in-house. The ESC serves to ensure that the VAT treatment is the same for VAT groups and businesses with overseas branches so far as it relates to overseas services bought in from third parties. The Government also plans to set up a consultation with stakeholders in May 2011.

VAT status of public bodies

Changes to UK law are planned to ensure it is properly aligned with EU agreements affecting public bodies, in particular where they carry out their duties in competition with the private sector. Draft legislation is expected in the autumn of 2011 with a view to introducing the legislative changes in Finance Bill 2012.

Joint initiative to tackle VAT fraud on imported road vehicles

The Government has launched a joint venture between HMRC and the DVLA to combat VAT fraud on road vehicles brought into the UK. From 2013, vehicles brought into the country for permanent use on UK roads will first have to be notified to HMRC online, then registered with the DVLA. This means that individuals and businesses that are not VAT-registered will have to pay VAT at the time of notification, whereas VAT registered businesses make the payment through their VAT returns. Where HMRC consider the payment is not secure, they will notify the DVLA, who will consequently refuse licensing and registration of the vehicle. A formal consultation document will be issued in May 2011 with a view to introducing the legislation in Finance Bill 2012.

VAT cost-sharing exemption

The Government has announced that consultation will continue on the possibility of implementing the VAT cost sharing exemption into UK legislation. This provision currently exists in EU law but has not yet been implemented in the UK, even though it can serve to remove a VAT cost barrier for organisations such as charities, universities and housing associations. Its introduction should enable them to work together to achieve economies of scale and, where applicable, reduce the VAT cost.