CCH Live News - Budget 2012

Budget 2012

Indirect tax

Overview

As regards to VAT, the Budget announcements usually include various expected and routine changes, such as:

  • increasing the thresholds for registration and deregistration; and
  • amending the scale charges for private fuel.

Most experienced practitioners wisely take little significant action in relation to such changes.

Some important changes, e.g. regarding record-keeping and partial exemption, are often made by a statutory instrument that is finalised only shortly before the changes apply. Other changes to the law may be in the Finance Bill which are finalised only when the Bill gets Royal Assent which most years is in latish July. Some important amendments to the Finance Bill and draft statutory instruments may be made after they were issued in draft form for consultation and before they take effect. Advisers should promptly warn their clients of this possibility.

Many changes that do finally take affect apply to only a few businesses. Thus, most practitioners often do little more than speed read a summary of the announcement.

One important and expected change that will have a widespread effect is the replacement of the default surcharge for VAT returns that are filed or paid late (VATA 1994, s. 59) by the penalty in FA 2009, Sch. 55 and 56. It is understood that this replacement may not take effect until about 2013-14. Computer software needs amending and many staff need training before the commencement date. The transition to the revised system for penalising such lateness may not be easy.

Stanley Dencher BCom (Hons) FCA CTA (Fellow) AIIT, tax writer at CCH.

Detailed Budget Measures

VAT: hot food and premises

This measure clarifies the definition of ‘hot food’ to confirm that the sale of all hot food, with the exception of freshly baked bread, is standard-rated (currently, some retailers argue that their sales of hot takeaway food are zero-rated). It also clarifies the meaning of ‘premises’ by confirming that the sale of all food sold for consumption in areas adjacent to a retailer (such as a table and chairs outside a caf´e) or in areas that are shared with other retailers (such as food courts in shopping centres) is standard-rated.

CCH Comment:

For supplies made on or after 1 October 2012, the meaning of ‘hot takeaway food’, which is currently based on the purposes for which food is heated, will be whether the food is above ambient air temperature when provided to the customer. Note (3) to VATA 1994, Sch. 8, Grp. 1 will provide that ‘premises’ includes areas adjacent to a retailer as well as areas that are shared with other retailers.

For more details see the Tax Information and Impact Note.

VAT: sports nutrition drinks

This measure will tax at the VAT standard rate the sale of sports nutrition drinks (mainly carbohydrate, protein and/or creatine based drinks) that are marketed as products that enhance physical performance, accelerate recovery after exercise, or build bulk.

CCH Comment:

For supplies made on or after 1 October 2012, standard-rating applies to sports drinks that are marketed as products designed to enhance physical performance, accelerate recovery after exercise or build bulk, and other

similar drinks, including syrups, concentrates, essences, powders, crystals or other preparations of such drinks (VATA 1994, Sch. 8, Grp. 1, new excepted item 4A). Most sports drinks are already standard-rated as beverages.

For more details see the Tax Information and Impact Note.

VAT: self storage

This measure requires all providers of self storage to charge VAT.

CCH Comment:

For supplies made on or after 1 October 2012, standard-rating applies to all supplies of self storage (VATA 1994, Sch. 9, Grp. 1, new exception to item 1). This change follows the decisions in Finnamore t/a Hanbridge Storage Services [2011] TC 01081 and UK Storage Co (SW) Ltd [2011] TC 01394 where the First-tier Tribunal decided that the grant of licences to use self-storage facilities were exempt licences to occupy land. Antiforestalling legislation applies to supplies made after 20 March 2012.

For more details see the Tax Information and Impact Note.

VAT: approved alterations to listed buildings

The measure will result in (1) all building materials and construction services supplied in the course of an approved alteration to a protected building becoming subject to VAT at the standard rate; and (2) a narrowing of the circumstances in which the first sale or long lease by a developer of a substantially reconstructed protected building can be zero-rated, so that only buildings reconstructed from a shell continue to benefit from the zero rate.

CCH Comment:

For supplies made on or after 1 October 2012, standard-rating applies to all building materials and construction services supplied in the course of an approved alteration to a protected building. Only buildings reconstructed from a shell continue to be zero-rated where there is the first sale or long lease by a developer of a substantially reconstructed protected building. This restriction of the zero-rating in VATA 1994, Sch. 8, Grp. 6 removes the incentive to change listed buildings rather than repair them and ensures that all alterations have the same tax treatment. Transitional arrangements will protect contracts entered into before 21 March 2012.

Anti-forestalling legislation applies to supplies made after 20 March 2012.

For more details see the Tax Information and Impact Note.

VAT: hairdressers’ chair rental 

This measure makes it explicit in legislation that the rental of a chair by a salon to a hairdresser is taxable at the standard rate of VAT.

CCH Comment:

For supplies made on or after 1 October 2012, standard-rating applies to the rental of a chair by a salon to a hairdresser. The tribunal has often considered whether there was a standard-rated supply of hairdressers’ facilities, rather than an exempt licence to occupy land under VATA 1994, Sch. 9, Grp. 1, item 1.

For more details see the Tax Information and Impact Note.

VAT: taxing holiday caravans

This measure taxes at the standard rate the sale of holiday caravans, which will be defined as caravans that are not designed and constructed for continuous year round occupation. Zero-rated holiday caravans are mainly static caravans but will also include a small number of larger touring caravans which can be towed by a motor vehicle.

CCH Comment:

For supplies made on or after 1 October 2012, zero-rating under VATA 1994, Sch. 8, Grp. 9 for caravans applies only to those that are designed and constructed for continuous year round occupation. A caravan is ‘designed and constructed for continuous year round occupation’ if it is manufactured to British Standard BS3632 or equivalent which applies to residential caravans. 

For more details see the Tax Information and Impact Note.

VAT: low value consignment relief

This measure removes low value consignment relief (LVCR) from mail order goods imported into the UK from the Channel Islands. This will end the exploitation of LVCR by suppliers established in the Channel Islands for the purpose of selling low value goods on a large scale free of VAT to UK customers. It was never intended that the relief should be exploited in this way.

CCH Comment:

For goods imported on or after 1 April 2012, removing the LVCR in Value Added Tax (Imported Goods) Relief Order 1984 (SI 1984/746), Sch. 2, Grp. 8, item 8 helps UK businesses to compete on a level playing field with those operating in the Channel Islands.

For more details see the Tax Information and Impact Note on the measure.
VAT: cost sharing exemption
General description of the measure

This measure allows a cost sharing group (CSG) to exempt from VAT, supplies made to their members, provided certain conditions are satisfied.

CCH Comment:

Arguably this exemption should have been included in UK law some decades ago under what is now Directive 2006/112, art. 132(1)(f) . Without the exemption, the sharing of costs such as wages, exempt-from-VAT rent and other costs that are not chargeable to VAT by charities and certain other organisations could attract VAT when recharged. This increased cost may deter organisations from working together and sharing costs. Subject to conditions, from the date of Royal Assent to the Finance Bill 2012, under VATA 1994, Sch. 9, new Grp. 16 VAT does not arise on such recharges.

For more details see the Tax Information and Impact Note on the measure.
Tackling VAT evasion on road vehicles brought into the UK

At Budget 2011, the Government announced a joint HMRC and Driver and Vehicle Licensing Agency (DVLA) initiative to combat VAT fraud on road vehicles brought into the UK.

From 2013, a person bringing a new or used road vehicle into the UK from within the EU or outside the EU for permanent use on UK roads must notify HMRC within 14 days of the arrival of the road vehicle in the UK and before registering it with the DVLA. In the case of an acquisition of a new road vehicle from within the EU, private individuals and non-VAT registered businesses will be required to pay any VAT due at the time of notification. VAT registered customers will continue to make payment via their VAT return.

Until HMRC is notified and any VAT due has been paid, or for VAT registered businesses is assessed as secure, it will not be possible to licence and register a road vehicle with the DVLA.

Some arrivals into the UK will be specifically excluded from the requirement to notify i.e. visitors bringing their vehicles into the UK temporarily, UK residents returning from a holiday with their road vehicle, private importers, and vehicles brought into the UK under secure schemes approved by the DVLA.

CCH Comment:

The 14-day deadline from 2013 is another task to complete and another one to get wrong.

For more details see the Tax Information and Impact Note on the measure.
VAT: online registration and removal of the threshold for non-UK established businesses

In October 2012 HM Revenue & Customs (HMRC) will introduce an enhanced and streamlined online service for VAT registration, deregistration and variations of business details. The measure will remove the requirement to prescribe 20 VAT forms in secondary legislation. Instead the particulars of these forms will be determined by the Commissioners for HMRC and made available publicly. The measure will also enable the use of electronic communications for registration, deregistration and variations.

The measure will require non-UK established businesses to register for VAT regardless of the value of taxable supplies they make in the UK. These businesses will no longer benefit from the UK VAT registration threshold.

CCH Comment:

Smart e-forms are part of HMRC's digital agenda of trying both to cut the scope for error and to minimise compliance costs. Both the improved online registration and the removal of certain forms apply from October 2012.

The removal of the registration threshold for non-UK established businesses apples from 1 December 2012. Removing the UK VAT registration threshold for non-established taxable persons (NETPs) aligns UK law with that elsewhere. This follows Schmelz v Finanzamt Waldviertel (Case C-97/09) where the ECJ ruled that only a business established in a member state can benefit from its domestic VAT registration threshold. Arguably, this ruling conflicts with the general prohibition of discrimination on the ground of nationality, i.e. equal treatment for all. Advising clients is difficult if more than one principle may apply to a transaction and if knowing which principle trumps the other(s) is uncertain. Such principles include (1) fiscal neutrality, (2) the purposive approach, (3) non-abuse of a right, (4) the means must be proportionate to the desired result, (5) direct effect in member states of certain EU law, (6) protecting human rights, (7) protecting legitimate expectations, (8) using other documents to interpret ambiguous or obscure material, (9) observing the principle of territoriality, (10) observing the principle of effectiveness and (11) interpreting narrowly any exception to the general requirement to charge VAT at the standard rate on all economic activity. When interpreting the law the following question does not ask itself Does one or more principle of interpretation apply?.

For more details see the Tax Information and Impact Note on the measure.
VAT grouping extra-statutory concession

Legislation will be introduced in Finance Bill 2012 to replace an extra-statutory concession (ESC) that allows reverse charges (which oblige the recipient of a supply to account for VAT on that supply as output tax) to be based on the cost of services purchased by the group members established overseas.

CCH Comment:

Notice 48, ESC 3.2.2 (2010 edn) applies to partially exempt VAT groups, often in the financial or insurance sector, with an overseas member that charges the UK group for services purchased outside the UK but used in the UK. The reverse charge stops offshore avoidance by large firms and keeps the competitiveness of smaller firms. From the date of Royal Assent to the Finance Bill 2012, charges due under VATA 1994, s. 43(2A) to 43(2E) are valued under VATA 1994, Sch. 6 on the cost. HMRC may require evidence that the value is not understated.

This replacement of the ESC preserves the existing treatment. Thus, tax advisers need take no significant action regarding this change.

VAT: supplies of goods or services by public bodies

This clarifies the UK VAT position of public bodies which supply goods or services.

CCH Comment:

From the date of Royal Assent to the Finance Bill 2012, under VATA 1994, new s. 41A where public bodies make supplies pursuant to a law which is unique to them, they are not regarded as doing so in the course or furtherance of a business carried on by them unless:

  • such treatment would distort competition; or
  • the supplies arise from activities described in Directive 2006/112, Annex 1 which are engaged in to a degree which is more than merely negligible.
  • A public body is identified as part of the public administration of the state and includes local authorities, the Scottish Administration and the Welsh Assembly Government. This change puts on a statutory basis the existing treatment in practice of public bodies and explicitly transposes Directive 2006/112, art. 13(1) into UK law. Until now HMRC have given effect to art. 13(1) by interpreting existing law in a way that achieves the purpose of art. 13(1). Thus, tax advisers need take no significant action regarding this change.

    For more details see the Tax Information and Impact Note on the measure.
    Machine games duty

    The taxation of gaming machines will be reformed through the introduction of machine games duty (MGD). MGD will be charged on the net takings from the playing of dutiable machine games. These are games played on a machine where customers hope to win a cash prize worth more than they stake. Where MGD is payable, it will replace both Amusement Machine Licence Duty (AMLD) and VAT.

    CCH Comment:

    Introducing MGD should protect tax revenues. There are so many gaming machines that practitioners need to study the introduction of this new fiscal impost that applies from 1 February 2013. The court has considered that VAT treatment of gaming machines (see R & C Commrs v Rank Group [2009] BVC 598 Rank Group plc [2010] TC 00301 and R & C Commrs v Rank Group plc (Joined Cases C-259/10 and C-260/10) [2011] BVC 389). VAT law will exempt from VAT supplies relating to the playing of dutiable machine games.

    Industry Comment:
    The Chancellor has today announced a higher duty rate of 20% for the new Machine Games Duty ('MGD') which is coming into affect from 1st February 2013.

    "This new rate will have a major impact on pub chains and leisure companies as a whole. For the leisure industry, this will almost certainly be the most significant announcement coming out of today's budget as many operators considered a revenue neutral MGD rate would be around 16/17%. Therefore the rate announced today could affect EBITDA at a time when many leisure businesses are already struggling".

    Gareth Martyn indirect tax director, PwC

    For more details see the Tax Information and Impact Note on the measure.

    Gambling duties: double taxation relief

    Double taxation relief (DTR) will be introduced for General Betting Duty (GBD), Remote Gaming Duty (RGD) and Pool Betting Duty (PBD).

    CCH Comment:

    This change for accounting periods concerning UK gambling duties ending on or after 1 April 2012 aims to ensure that UK based operators do not suffer from double taxation as other countries introduce place of consumption based taxation regimes for remote gambling. By encouraging gambling operators to remain in the UK, the relief protects both tax revenues and jobs in the UK.

    For more details see the Tax Information and Impact Note on the measure.
    Repeal of section 22 of the Alcoholic Liquor Duties Act 1979

    This measure repeals redundant legislation covering the drawback (i.e. repayment) of excise duty on spirit manufactured by licensed rectifiers and compounders that is exported from a producer's premises or placed in a warehouse for approved purposes. Producers and exporters wishing to claim drawback on direct exports of rectified or compounded spirit may do so under the existing provisions of the Excise Goods (Drawback) Regulations 1995 (EGDR).

    For more details see the Tax Information and Impact Note on the measure.
    Air passenger duty: business jets

    Air passenger duty (APD) will be extended to smaller aircraft and business jets (5.7 tonnes threshold), effective from 1 April 2013. Passengers aboard luxury business jet flights will pay new premium rates of APD set at double the business/first class (standard) rates of APD.

    For more details see the Tax Information and Impact Note on the measure.
    Air passenger duty: cut in Northern Ireland rate

    This measure cuts air passenger duty (APD) for passengers travelling from Northern Ireland on direct long-haul flights (bands B, C and D) to the prevailing short-haul (band A) rates of duty. The band A rates of duty are currently £12 in economy (reduced rate) and £24 in business/first class (standard rate). As announced at the Autumn Statement on 29 November, the band A rates will rise to £13 and £26 respectively, from 1 April 2012.

    For more details see the Tax Information and Impact Note on the measure.
    Carbon price floor: additional legislative provisions

    Following the announcement at Budget 2011 that a carbon price floor would be introduced on 1 April 2013, most of the primary legislative provisions were included in Finance Act 2011. Legislation in Finance Bill 2012 will introduce the following four additional provisions, the first two of which were announced at Budget 2011:

    • lower carbon price support (CPS) rates of climate change levy (CCL) and fuel duty for supplies of fossil fuels to good-quality combined heat and power (CHP) stations that are intended to be used to generate electricity. The levels of the lower rates will be announced at Budget 2012;
    • abated CPS rates of CCL for supplies of fossil fuels to generation stations fitted with carbon capture and storage (CCS) technology;
    • clarification over which person will be responsible for charging and accounting for the CPS rates of CCL; and
    • changes to the taxation under the carbon price floor of solid fuels from weight (i.e. kilogram) to heat / calorific value (i.e. joule).

    The draft legislation also includes provisions for setting the CPS rates of CCL for the year 2014–15, details of which will be announced at Budget 2012. A number of more detailed provisions are also included in the draft primary legislation.

    The draft secondary legislation setting out the detailed administrative provisions to enable HM Revenue & Customs (HMRC) to administer the carbon price floor is also being published.

    For more details see the Tax Information and Impact Note on the measure.
    Climate change levy: change to the reduced rate on electricity

    The measure amends the reduced rate of climate change levy (CCL) on electricity only from 35 to 10 per cent, with effect from 1 April 2013, rather than to 20 per cent as announced at Budget 2011. The measure will also correct a legislative omission made when changes were made to the reduced rate in Finance Act 2010.

    For more details see the Tax Information and Impact Note on the measure.
    Climate change levy: metal recycling processes

    The measure will introduce a lower rate of 20 per cent of the full rates of CCL for supplies of taxable commodities used in recycling of steel and aluminium, from 1 April 2012. This is the equivalent of an 80 per cent discount on the full rates of levy.

    The scope of the relief, the conditions for it and the method of administration will all be identical to what existed under the full exemption for supplies used in these recycling processes between 1 April 2001 and 31 March 2011.

    The Government is implementing this 20 per cent rate while at the same time continuing to explore the potential for increasing the level of relief.

    For more details see the Tax Information and Impact Note on the measure.
    Climate change levy: electricity produced in combined heat and power stations

    Budget 2011 announced the ending of the exemption from climate change levy (CCL) for electricity produced in a CHP station that is supplied by an electricity utility indirectly to an energy consumer (the CCL CHP indirect supplies exemption).

    Legislation will be introduced in Finance Bill 2012 to provide that regulators will no longer issue levy exemption certificates (LECs) for electricity generated in a CHP station from 1 April 2013. Electricity utilities will be able to continue to allocate CHP LECs that they acquired relating to CHP generation made before 1 April 2013, but only for a limited number of years. This will give them time to use up their stocks, while ensuring that CHP electricity generated after 1 April 2013 does not benefit from exemption from CCL. The Government will announce the length of this transitional relief at Budget 2012.

    This measure will also provide for transitional arrangements, for example to deal with reconciling provisional allocations of LECs with those due in practice. It will also reinstate certain arrangements that existed before the introduction of CHP LECs in 2003.

    CCH Comment:

    Few tax advisers need to study this fiscal impost. The regulators will not issue LECs to electricity generators for electricity generated in a CHP station from 1 April 2013. Electricity utilities will be able to continue to allocate CHP LECs that they acquired on CHP electricity generation made before 1 April 2013, but only for a limited number of years.

    For more details see the Tax Information and Impact Note on the measure.
    Stamp duty land tax and stamp duty: relief for NHS bodies

    This is a technical measure which re-enacts and updates an existing stamp duty land tax (SDLT) relief for acquisitions of interests in land by certain NHS bodies. It repeals an equivalent stamp duty relief, which is obsolete.

    CCH Comment:

    Few practitioners need to know about this specialised relief that applies from the date of Royal Assent to the Finance Bill 2012.

    For more details see the Tax Information and Impact Note on the measure.