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BUDGET 2008 NEWS |
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VAT See TM ¶7770 and VAT Memo
Registration thresholds
Fund management services Following the ECJ decision in the case of J P Morgan Fleming Claverhouse, and subsequent announcements, it has been confirmed that the existing legislation which defines the exemption for fund management services is to be extended. The exemption is to be extended to the provision of fund management services to all UK listed investments (including investment trust companies and venture capital trusts). The exempt will also apply to the management of certain overseas funds.
The notable exception from provision is pension funds. Pension funds have been lobbying to have their management charges included within the exemption, but the budget notes follow HMRC’s brief on this issue and have construed the exemption narrowly. It is possible that a test case will be taken to the VAT tribunal in the coming year.
Fuel scale charges New fuel scale charges will apply from 1 August 2008. This will affect traders next prescribed accounting period commencing on or after this date. The fuel scale charge has been brought into line with the direct tax car and fuel benefits table. The new table can be found at www.hmrc.gov.uk, and will be included in the new edition of VAT Memo, published in April, as well as on the online version of the existing edition.
Smoking cessation products The reduced rate of VAT is to continue to apply to smoking cessation products after 30 June 2008. It is not clear whether this will be for a further 1 year period, or indefinitely.
Three year cap As expected the government has announced that it intends to legislate for a transitional period for claims relating to rights accrued before December 1996 for output tax, and May 1997 for input tax following the House of Lords decisions in Fleming and Conde Nast. Readers of Tax Memo and VAT Memo updates will be aware that it was held that it was unlawful for the 3 year cap to be introduced without implementing a suitable transitional period. As a result it is possible to make claims until 31 March 2009 for:
· Output tax over-declared between 1 April 1973 and 4 December 1996; and · Input tax under-claimed from 1 April 1973 to 1 May 1997.
Claimants should be aware that it is proposed that HMRC’s powers of assessment will be amended to enable them to recover VAT which is subsequently found to have been repaid incorrectly within 2 years from the end of the accounting period in which erroneous payment is made. This change will be included in the Finance Bill.
This is a change from the existing legislation which states that HMRC can only assess within 2 years of being in full possession of the facts. Presumably, HMRC feels that as they have been in “full possession” of protective claims relating to Fleming/Conde Nast for some time, and have had to release taxpayers from the undertakings that they would repay should HMRC win at the House of Lords they require some additional power in case of any fraudulent claims. It appears from the information available that these powers will extend to any claim for output tax and input tax not just Fleming/Conde Nast related claims.
Staff hire concession It was announced that the staff hire concession for employment bureaux is to be removed from 1 April 2009. HMRC have stated that they feel that employment law now give fair treatment to employment bureaux as they are treated as employers and are therefore in the same position as an ordinary employer. This is not unexpected, and VAT will now apply on all consideration received for the hire of staff. Under the concession the bureau only needed to account for VAT on their margin, after taking into account wages paid to the “employee”.
Many businesses in sectors where there is a restriction on input tax recovery, such as finance and charities, will be disappointed that the concession is being withdrawn. It was common practice in these industries for the staffing arrangements of subsidiaries, or connected parties who were not part of a VAT group, to be structured in this way.
The other interesting point on the removal of the concession is that in the technical note HMRC have stated that the concession “has no basis in UK or EU law”. Following the announcement that government is going to legislation for concessions which have been deemed to be outside HMRC’s powers (see Codifying concessions in Powers, penalties and administration) this may be an indication that some concessions will be withdrawn rather than codified.
Option to tax reform As expected, comment was made on the proposed reforms to the option to tax legislation (Schedule 10 VATA 1994).
Following previous consultations, as detailed in VAT Memo, a number of changes are proposed, including:
· Opted properties held in a VAT group; · Opted buildings acquired for use as dwellings or relevant residential purpose and bare land acquired for construction of buildings for these purposes; · The introduction of a new option to simplify the option to tax process for taxpayers with a number of properties; · Early revocation of an option to tax within a "cooling-off" period; · The automatic lapse of an option to tax six years after the taxpayer ceased to have any interest in a property that they had previously opted to tax; · The ability, in certain circumstances, to exclude a new building from a previous option to tax; and · Late applications for permission to opt to tax.
The legislation will have effect from 1 June 2008, at the earliest, and will include the provisions for revocation of options. The earliest an option can be revoked is 1 August 2009.
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