Article on the Budget by Stephen Coleclough, VAT Partner PricewaterhouseCoopers, published in the April 2001 issue of "Tax Adviser". VAT changes
VAT reforms to encourage free-entry to museums, to ease the burden on small businesses and to encourage the regeneration of our inner cities were the prime targets for the Chancellor in this year’s Budget.
Proposals to ease the pain of VAT compliance for small and medium sized enterprises will no doubt be a welcome move, in particular, the proposal that businesses with a turnover of less than £100,000 can move to a flat-rate scheme. This is a similar scheme to that already used by farmers whereby a taxpayer will not be able to recover VAT nor will he be obliged to charge it in the usual way, but will simply account for VAT on a hypothetical margin.
The margin has not been fixed yet and we do not know whether this will be different for each sector or one flat rate for all. However, if it is not to the benefit of the trader to take advantage of the scheme, businesses are welcome to remain under the existing rules if they so choose.
...the value of business gifts which can be given to customers and the like (eg golf umbrellas etc) without having to account for VAT goes uo to £50 from £15...
As with many other measures in the Budget, the reduced VAT rate payable on sales of renovated houses that have been empty for three years and houses converted into a number of separate dwellings (i.e. flats) or residential homes was foreshadowed in the pre budget statement. At present these are VAT exempt, which means a VAT cost of 17.5 per cent on costs arising on these operations. Going forward this VAT will be recoverable in full but VAT at five per cent will have to be paid on the sale proceeds. This should enable developers to increase their margin (reduce their loss!) on such developments, but we will have to wait and see whether this will be sufficient to overcome the costs inherent in re-developing urban sites.
We are still awaiting details of last year’s promised exemption from stamp duty of land in urban regeneration areas and the practical details of how this will work, perhaps it would be consistent to apply the same tests that are applied for the reduced rates of VAT.
Under present rules, charging for admission enabled a number of our major museums to recover VAT on significant costs of refurbishment, etc. and if they ceased to charge and hence charge VAT, they would be no longer able to do so. The Government has now announced that it will introduce new rules whereby selected museums, etc. will be allowed not to charge and still obtain a VAT refund direct from the Government.
The UK is partially implementing a new EU VAT directive which removes the need for businesses not established in the UK but making supplies here (e.g. businesses with stocks in the UK or UK property investments) to appoint UK fiscal representatives, who are jointly and severally liable for the VAT. If the business is in a country where we have reciprocal enforcement procedures then the requirement will no longer be required. This will reduce the administrative burden on business, saving time and money.
Finally, the value of business gifts which can be given to customers and the like (e.g. golf umbrellas, etc.) without having to account for VAT, goes up to £50 from £15. This is the first increase since 1995 and is a welcome increase.
Although, at the time of going to press, we are still awaiting the widely predicted announcement of a 3 May Election date, the size and scope of this year’s Budget suggest that a General Election is imminent. Confirmation of changes announced in the pre-Budget report alongside some fine-tuning of the system would be a good overall description. Hopefully in the next Budget we will finally see the introduction of new stamp duty rules to complement the de-materialisation of the Land Registry. We would also hope for some simplification, particularly with VAT. Unfortunately, this does not seem to be on the Government’s agenda.
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April 2001 by