VAT: Addressing borderline anomalies

A range of changes will be introduced with effect from 1 October 2012. They will confirm standard-rating for:-

  • Catering – "hot" takeaway food and "on premises" consumption;
  • Sports nutrition drinks;
  • Self-storage;
  • Hairdressers‟ chair rental;
  • Holiday caravans; and
  • Approved alterations to listed buildings.

Although all of these changes are expected to produce increases in the amount of VAT collected, the changes to the treatment of self-storage and removal of zero-rating for alterations to listed buildings are expected to yield more significant amounts of tax. Anti-forestalling measures are being introduced in the Finance Bill 2012 and under the Provisional Collection of Taxes Act, to prevent suppliers of self-storage, and owners and developers of listed buildings, from taking advantage of the current rules to nullify the effect of the changes for supplies that, ordinarily, would have been affected by the revised legislation. HMRC is consulting on the provisions designed to implement the changes.

Machine Games Duty

As foreshadowed by HMRC‟s Information Note about Machine Games Duty, the rates of duty have been announced. The lower 5% rate will apply to machines where both the maximum cost to play any game is 10p (or less) and the maximum cash prize for any game is £8 (or less); and the standard 20% rate will apply to all other dutiable machine games. The new tax is due to come into force on 1 February 2013, when it will replace amusement machine licence duty and VAT on the takings from certain gaming machines. Whilst the changes are expected to be revenue neutral overall, there will be winners and losers‟ across affected sectors. For most businesses there will be additional VAT costs as well, because VAT exempt income means that the VAT incurred on goods and services related to exempt income can no longer be recovered. This increases the cost of the purchase or hire of machines for gaming machine businesses as well as increasing capital costs such as refurbishments or construction of premises. For more information about the introduction of Machine Games Duty and its implications, please contact Barney Horn on 0121 695 5902.

Energy saving materials in charity buildings

At present, the installation of energy saving materials in buildings used for non-business purposes by charities (including as village halls or similar) qualifies for the 5% rate of VAT. Legislation to remove the relief from such work (and hence to make it liable to VAT at the standard rate) is to be introduced in the Finance Bill 2013. The 5% rate will continue to be available for energy saving materials installed in residential accommodation (including that owned and operated by charities).

VAT registration and deregistration thresholds increase from 1 April 2012

As usual, the VAT registration and deregistration thresholds will be increasing (to £77,000 and £75,000 respectively), with effect from 1 April 2012.

Vehicles for the disabled and boats for wheelchair users – voluntary disclosure scheme

Recent cases have highlighted instances where HMRC has challenged the application of the zero-rate VAT relief, particularly in relation to high value cars. It has now been decided that a voluntary disclosure scheme is to be introduced to gather further information about the use of the VAT zero rate relief on the supply of motor vehicles and boats adapted for use by wheelchair users. According to the commentary on this, "(t)he relief is open to wide interpretation, difficult for suppliers to administer and vulnerable to abuse".

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.