The Budget 2008 – an overview of the VAT changes
Well, the Chancellor has finished his speech and I’m going through the Budget Notes to see what he’s managed to sneak in that he didn’t announce in his speech. I only heard one mention of VAT in the speech so I expect 16 pages of Budget Notes that I have mean there’s quite a few changes. So, let’s work through them:
Registration limits
No great surprise here, the limits have been increased from £64,000 to £67,000 for registration, and £62,000 to £65,000 for de-registration. The changes come into effect on 1 April 2008.
Now might be a good time to reiterate the rules for registration. You have to register for VAT if your turnover in the last 12 months has exceeded the limit. You have 30 days in which to notify HMRC that you have exceeded the registration limit, and will be registered from the first day of the second month after the month in which you went over the limit. An example might make that clearer:
At the end of February you check your turnover for the 12 months, and find it is over the limit. You have until 30 March to tell HMRC this. Your registration would start on 1 April.
The only exception to this is if you expect your turnover in the next thirty days to exceed the registration limit. In this case, counting your turnover from zero on day one, you would have to turn over more than the registration limit in the next 30 days. Your registration would start from day one, although you still have 30 days to notify HMRC.
Amendment to the exemption for fund management
This measure is to bring the UK into line with an ECJ ruling that widened the exemption for Financial Services. The changes will come into effect from 1 October 2008.
Correction of errors on VAT returns
For VAT periods starting on or after 1 July 2008 new rules will come into effect that allows errors of up to £10,000, and up to £50,000 where the error is no more than one per cent of turnover, to be corrected on a VAT return. The basis for the turnover appears to be that shown in Box 6 of the VAT return. What is not clear is whether that is the VAT return for the period in which the error is corrected. It would seem logical that it is. It therefore would be important to correct errors as quickly as possible to avoid exceeding this limit. The vast majority of VAT registered businesses are unlikely to be bothered by the one per cent limit.
Fuel Scale charge
New fuel scale charges will come into effect for VAT periods starting on or after 1 May 2008. The table of changes is so large that I won’t even try to give a précis of it here – I’ll update the Fuel Scale Charge page on my website in the next few days.
Reduced rate for smoking cessation products
The only VAT related item mentioned in the Chancellor’s speech.
The current reduced rate of VAT, 5%, will continue to be available for these products from 1 July 2008. The reduce rate was originally introduced from 1 July 2007.
The reduced rate applies to:
“… all non-prescribed sales of patches, gums, inhalators and other pharmaceutical products held out for sale for the primary purpose of helping people to quit smoking.”
Transitional period for claims
This item is to bring into legislation the transitional period that HMRC tried to introduce administratively some years ago, and which was rejected by the House of Lords earlier this year in their judgment in the Fleming and Condé Nast cases.
The transitional period will run until 31 March 2009 and applies to claims for tax periods before 4 December 1996 where tax had previously been overdeclared, and for tax periods prior to a May 1997 where the tax had previously been under claimed.
Option to Tax Land and Buildings
This measure is intended to simplify the current legislation relating to the option to tax land and/or buildings. The changes will have effect from 1 June 2008 and will be contained in a Treasury Order and a subsequent VAT Notice.
If you want to get copies of the Budget Notes you can get them from HMRC’s website.
That’s all for now folks.
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