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Summary of The Emergency Budget Changes



Sadly Steve Allen died in July 2011. His wife Leah would like to thank all those who know Steve and helped contribute to his success. She has recommends Steve's clients and anyone who is interested in this article topic to contact Rob McCann from “The Vat people” on (tel) 0161 477 6600 . Please make reference to Steve Allen.

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Issued July/August 2010

1. Increase in the standard rate

From 4 January 2011, the standard rate of VAT will increase from 17.5 % to 20%. The change will be effected through legislation to be included in the Finance Bill 2010. HMRC state in BN43 that existing zero-rated supplies, exempt supplies, and supplies subject to VAT at the reduced 5 per cent rate, are not affected by this change.

2. Increase in the standard rate – Anti-Forestalling

Following the announcement to increase the standard rate of VAT 20%, anti-forestalling legislation will be included in the Finance Bill 2010 to prevent the 17.5% rate being applied to supplies of goods or services provided on or after 4 January 2011, subject to certain conditions. Where appropriate, a supplementary 2.5% VAT charge will become due on or after 4 January 2011.

3. Flat Rate Scheme

As a consequence of the increase in the standard rate to 20%, the Flat Rate Scheme (FRS) sector flat rates have been recalculated accordingly. The new rates will be effective from 4 January 2011, and are set out in a table in BN45, which also advises that the current £225,000 turnover threshold for having to leave the scheme will increase to £230,000. Similarly, the current £187,500 turnover threshold for one-off breaches will be increased to £191,000. The changes will be introduced through the amendment of secondary legislation later this year.

4. Lennartz Accounting

From January 2011, a measure is being introduced to implement changes to the recovery of VAT on immoveable property, boats and aircraft where there is private use of the asset. From that date, VAT recovery will be restricted only to the business use of the asset. In addition, the measure will ensure that revenue is protected in respect of existing Lennartz accounting arrangements. BN42 states that the change will render the existing legislation for recovery of VAT on directors’ accommodation redundant, and so will be removed. The legislation for the measure will be included in the Finance Bill 2010.

5. Postal Services

From 31 January 2011, a measure will be introduced which restricts the VAT exemption for postal services to the supply of public postal services by a universal service provider (USP). It will also update the zero-rating for passenger transport services to reflect the status of the provider of a passenger transport service supplied in conjunction with its postal services.

Currently, VAT exemption applies to the conveyance of postal packets, and services connected to the conveyance of postal packets, by the Post Office company, including any wholly owned subsidiary of the Post Office company. In practice, this means all postal services provided by Royal Mail (including Parcelforce) are exempt from VAT. In future, the exemption will only apply to supplies of services made under a licence duty, including those where, pursuant to a licence duty, the USP allows private postal operators access to its postal facilities. Royal Mail is the only USP in the UK. The legislation for the measure will be included in the Finance Bill 2010.

6. Change in the zero-rating of ‘qualifying’ aircraft

A new measure is being introduced from 1 January 2011, which will amend the criteria for the zero-rating of supplies of aircraft and associated supplies. From that date, the basis for zero-rating will change from one based on weight and usage to one based on the status of the customer. Supplies to State institutions will not be affected.

7. Place of supply of gas, electricity, heat and cooling

Another new measure being introduced on 1 January 2011 will implement EU changes to the place of supply rules

for natural gas and electricity. From that date, the existing rules will be amended so as to:

• cover supplies in all types of natural gas pipeline, but they will no longer apply to natural gas in pipelines located outside the EU unless they are linked to EU pipelines;

• extend relief from VAT at importation for all natural gas imported via a network (including liquefied natural gas by tanker); and

• extend the scope to include heat and cooling supplied through networks.

The measure will come in by amending primary legislation and introducing secondary legislation this year.

About the Author

STEVE ALLEN is the Managing Director of VAT Advisers Ltd, and has more than 19 years’ experience in VAT. Beginning with HM Customs & Excise in 1990, Steve spent 8 years in the Department in a variety of roles such as VAT Insolvency and VAT investigation in Liverpool, and latterly as a VAT Inspector at Wigan VAT Office.

Steve left the Department in 1998 to become a consultant with Latham Crossley and Davies, before joining Ernst & Young. In 2001, Steve formed VAT Solutions (UK) Ltd with a co-Director, and built up a successful practice over 8 years before setting up VAT Advisers Ltd in September 2009.

Steve advises accountants and individual businesses on all aspects of VAT, but in particular, issues concerned with land and property, charities, cross-border trading, and arrears of VAT.

VAT Advisers Ltd,
1 Dundonald Avenue
Stockton Heath
(t) 01925 212244
(f) 01925 212255
(m) 07810 433927

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Article Published/Sorted/Amended on Scopulus 2010-09-17 18:20:25 in Tax Articles

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