Budget Summary: Value Added Tax

April 2009

Registration and deregistration thresholds

The VAT registration threshold will increase to £68,000 (from £67,000) from 1 May 2009. The threshold at which a business can apply for deregistration will increase from £65,000 to £66,000 from the same date.

Temporary change of standard rate

The Chancellor has confirmed that the temporary reduction in the standard VAT rate to 15% will end on 31 December 2009.

From 25 November 2008 there are rules to counter ‘forestalling' schemes that aim to apply the 15% rate to goods or services supplied after 31 December 2009. Forestalling works by the supplier issuing an invoice or receiving payment before the rate rises. A supplementary 2.5% VAT will be charged where the customer cannot recover all the VAT on the supply and one of the three following conditions is met. These are that the supplier and customer are connected, the supplier funds the purchase, or a VAT invoice is issued where payment is not due for at least six months.

There will also be a supplementary charge on certain prepayments of more than £100,000 made before the rate rise for goods or services to be supplied after 31 December 2009, unless the prepayment is in accordance with commercial practice. This rule has effect after 30 March 2009.

Think ahead

Consider switching to the flat rate VAT scheme for small businesses if your business has few costs and overheads, and your turnover is less than £150,000 a year. The VAT you pay is calculated by multiplying your gross sales by a flat rate determined by your business sector. Purchases are ignored, so the scheme is very simple to use.

Opting to tax land and buildings

It will be easier to opt to tax supplies of land and buildings on which the taxpayer has made previous exempt supplies. Such taxpayers currently have to obtain HMRC's permission to tax supplies unless they meet one of four automatic permission conditions. These conditions will be widened from 1 May 2009.

Children's car seats

The existing 5% reduced rate of VAT for children's car seats will be extended from 1 July 2009 to include bases for such seats.

Gaming

VAT will be removed from participation fees for playing bingo and other games of chance. Participation fees are charges that a gaming operator makes to customers for participating in gaming. The VAT exemption will be introduced alongside a package of changes to bingo and gaming duties that will take effect on 27 April 2009.

Cross-border VAT

Amendments will be made to the VAT rules for cross-border supplies from 1 January 2010.

•    Changes to the place of supply rules for services will ensure that, as far as possible, VAT is due in the country in which the service is consumed rather than where the supplier is established. Most UK business customers will therefore have to account for UK VAT on most services provided by overseas suppliers under the reverse charge provisions. There will be some exceptions. Land-related services will be deemed to be supplied where the land is situated, as at present. Some of the changes will be delayed until 1 January 2011 and others until 1 January 2013.

•    New rules for determining the time of supply of cross-border services will affect supplies treated as made in the UK by the recipient. The time of supply will be governed primarily by when a service is performed.

•    Where a UK business makes supplies to a customer who has to account for a reverse charge in their own country, the supplier will have to complete EC sales lists for each calendar quarter.

•    A new electronic VAT refund procedure is being introduced across the EU to replace the current paper-based system. UK businesses will submit claims electronically for overseas VAT on a standardised form to HMRC rather than direct to the member state of refund. There will be changes to the time limits governing refund claims.

Don't forget

Register for VAT in time! If you are running a new business, you may be too busy to notice how much your turnover has grown. Track your sales in the 12 months up to the end of each month. If the total tops £68,000, you must register for VAT within 30 days. If you delay, the penalties can be painful and have just been increased.

Fuel scale rates

The fuel scale charges have been revised to reflect changes in fuel prices.  Businesses must use the new scale charges from the start of their next prescribed accounting period beginning on or after 1 May 2009.