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VALUE ADDED TAX |
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Time of supply See TM ¶7900 The standard rate of VAT will increase to 20% from 17.5% with effect from 4 January 2011. Special measures will be introduced to prevent the 17.5% rate applying to supplies made on or after 4 January 2011 where the recipient of the supply is unable to recover all the VAT on the supply and either: » the parties are connected; and/or » the value of the supply exceeds £100,000 (unless prepayments or advance VAT invoices are usual commercial practice); and/or » the supplier (or someone connected with the supplier) funds a prepayment; and/or » an advance invoice is issued and payment is not due for at least six months. Flat rate scheme percentages See TM ¶8636 When the standard rate of VAT goes up to 20% on 4 January 2011 the following percentages will apply under the flat rate scheme:
* ‘Labour-only building or construction services’ means building or construction services where the value of materials supplied is less than 10% of relevant turnover from such services; any other building or construction services are ‘General building or construction services’. Flat rate scheme thresholds See TM ¶8650 The increase in the standard rate of VAT to 20% on 4 January 2011 will affect the flat rate scheme thresholds. Businesses with a total taxable annual turnover of up to £150,000 will be eligible to join the scheme as now. However, the threshold beyond which businesses will have to leave the scheme is a VAT-inclusive figure and so will go up, from £225,000 to £230,000. If a business exceeds that threshold as a result of a one-off transaction, it will be allowed to remain in the scheme if its tax-inclusive turnover in the following year is not expected to exceed £191,500 (£187,500 until 4 January 2011). Late filing of returns and payment of VAT See TM ¶9858 From a date to be announced a new, largely flat-rate penalty regime will apply where a VAT return is submitted after the due date and a new tax-geared penalty regime will apply where payment is made after the due date. The maximum late filing penalty will be £400, unless failure to file extends beyond 6 months, in which case a penalty of 5% of the relevant tax is proposed, with another 5% levy after 12 months. The tax-geared penalties for late payment will go up to 4%, unless failure to pay extends beyond 6 months, in which case a penalty of 5% of the relevant tax will be payable. Another 5% levy will become due after 12 months. Rate of VAT See TM ¶9986 The standard rate of VAT will increase to 20% from 17.5% with effect from 4 January 2011. No change will be made to the list of zero-rated items and the reduced rate will remain at 5%. AS PREVIOUSLY ANNOUNCED Postal services exemption See TM ¶8042 From 31 January 2011 the exemption for postal services will be restricted to supplies of public postal services (and incidental goods) by the universal service provider (currently Royal Mail). Postal services supplied on terms which are individually negotiated, and services not made under a licence duty, will become standard-rated from that date. Zero-rating of aircraft See TM ¶8052 For zero-rating purposes, a qualifying aircraft will no longer be determined by its weight or commercial design. From 1 January 2011 zero-rating will depend on the recipient of the supply being an airline operating for reward chiefly on international routes. When previously announced the implementation date was 1 September 2010. Lennartz mechanism TM ¶8142, ¶8145 The Lennartz mechanism is to be made unavailable in respect of purchases of land, property, boats and aircraft. The Lennartz mechanism applies where an asset is purchased for both business and private purposes. Under this mechanism full input tax recovery is permitted on purchase and output tax is accounted for in respect of private use over the asset’s economic life. From 1 January 2011 full input tax recovery will not be available on purchase; instead input tax will be restricted to the business use proportion. The Capital Goods Scheme will be amended to take account of this change. HMRC has also recently announced an amended policy under which Lennartz is not available unless non-business use is private use (as opposed to, for example, use by a charity for non-commercial purposes). Legislation will be introduced to ensure that those affected by this change of policy do not gain an advantage by, for example, ceasing to account for output tax on non-business use. |
