Tax Factor
10 February 2010
The VAT Changes – how they affect you and your business
There are a number of significant VAT changes recently implemented or proposed which will affect all VAT registered traders. In this article we highlight some of the main areas requiring consideration.
1) VAT Rates
The VAT rate will be reverting to 17.5% from 1 January 2010 from its temporarily reduced rate of 15%. However this is being accompanied by anti-avoidance measures to prevent any business from unfairly benefiting from the rate change.
Those on a flat rate scheme must check carefully to ensure that they are using the correct rate from 1 January 2010 as this may not be the same as the rate they used prior to the change on 1 December 2008.
2) Misdeclaration
From April 2009 the point at which you must make a separate disclosure of any VAT error to the VAT office, known as the Misdeclaration limit, increased. The new limit is £10,000 rising to £50,000 for larger traders. However due to changes in the penalty system making a full disclosure to the VAT office at a much lower level may be advisable.
3) Penalty System
In August 2009 a new penalty system was introduced. This is intended to target situations in which it is considered there has been intent to achieve a tax benefit but innocent errors may also be penalised. Hence the advice to bring any error to the attention of the VAT office as soon as it is discovered, irrespective of the sum involved.
From 1 April 2010 all existing businesses with a turnover exceeding £100,000 and all new registered businesses, regardless of turnover, will have to file and pay electronically. For all other businesses the rules will be reviewed again in 2012.
5) Paying your VAT.
You can now pay your VAT liability by debit or credit card, although there is a 1.25% transaction fee for credit card payments.
6) Extension of Time Limits for VAT Assessments and Claims.
The previous three year time limit is now being extended to four years. This means that the VAT office has a longer period to raise assessments and the trader has a longer period in which to claim a VAT recovery.
On a practical note VAT inspections may become less frequent with reviews taking place every four years as opposed to the current three. We are currently in a transitional period with the full four year limit coming into effect from 31 March 2010.
7) VAT on Land and Buildings
There have been a number of changes to the "option to tax" regime for land and buildings. This area is complex and anyone who thinks they may be affected should seek advice relevant to their particular circumstances.
8) Place of Supply of Services
A number of changes to the way VAT is accounted for on cross border services come into effect from 1 January 2010. These changes include a new basic rule for business to business supplies and a reduction in the number of exceptions to the general rule. Further changes are to be introduced over the next five years. HMRC has recently released notice 741A which gives details of these.
A business making cross border supplies of services will need to notify HMRC and complete an EC Sales List (form VAT101) to report the value of sales per quarter by VAT registration number of the customer. These reports may be made electronically and this can be linked to the enrolment for electronic submission of VAT returns.
As a result of the widening of the description of supplies covered by the reverse charge, there will be additional costs for partly exempt businesses becoming potentially liable to be registered in the UK solely through the receipt of such supplies.
A planning opportunity does exist for any business that is not able to reclaim all of its input tax and which receives basic rule services from outside the UK. However prompt action is required in order to benefit from this.
