2010 Budget: main VAT changes
The main VAT changes announced in the Budget delivered on 24 March 2010 are outlined below.
VAT Fuel Scale Charges – changes
The VAT Fuel Scale Charge system is a simplified means of taxing the private use of business fuel. The scale charges are amended annually in line with average fuel costs. The system provides businesses with a figure for the average fuel expenditure on private mileage. This is based on the average cost of fuel per kilometre and the average distance covered per vehicle each year on private journeys. The charge is VAT inclusive and the taxpayer accounts for the VAT element as output tax on their VAT return. The scale charges have been updated to reflect changes in fuel prices.
VAT – Changes to zero-rating of qualifying aircraft
Legislation will be introduced to change, from 1 September 2010, the definition of aircraft that can be supplied at the zero-rate from one based on weight and usage to one based on the status of the customer. Supplies of aircraft will be zero-rated only where used by airlines operating for reward chiefly on international routes. Supplies to State institutions are not affected by the change.
VAT – Cost sharing exemption
The Government recognises the efficiencies that can be achieved by organisations such as charities sharing services and the potential VAT barrier that exists. The Government will work with charities and other affected sectors to consider options for implementing the EU cost sharing exemption.
VAT – Place of Supply of gas, electricity, heat and cooling
The measure implements EU changes to the Place of Supply rules for natural gas and electricity. The existing rules are to be amended from 1 January 2011 to:
- cover supplies in all types of natural gas pipeline, but they will no longer apply to natural gas in pipelines located outside the EU unless they are linked to EU pipelines
- provide relief from VAT at importation for all natural gas imported via a network (including liquefied natural gas by tanker)
- extend the scope to include heat and cooling supplied through networks
VAT – Postal services
This measure restricts the VAT exemption for postal services to the supply of public postal services by a Universal Service Provider (USP). It also updates the zero-rating for passenger transport services to reflect the status of the provider of a passenger transport service made in conjunction with its postal services. This change will have effect from 31 January 2011.
VAT – Reverse Charge for emissions allowances
Legislation in Finance Bill 2010 will allow the reverse charge to combat VAT Missing Trader Intra-Community (MTIC) fraud for goods to apply equally to services. A Reverse Charge will be introduced for supplies of emissions allowances, from 1 November 2010, the effect of which will be that a VAT registered business purchasing allowances will account for and pay the VAT chargeable instead of the supplier. This will replace the interim zero-rate introduced in July 2009.
Legislation will also provide an option for the introduction of reporting requirements to deal with fraud in the services sector. There will not be any additional reporting requirements for emissions allowances so suppliers will not be required to provide ‘Reverse Charge Sales Lists’ for supplies of emissions allowances.
VAT – Right to Deduct
This measure deals with VAT recovery on immoveable property, boats and aircraft where there is private use of the asset. In addition, it ensures revenue is protected in respect of existing Lennartz accounting arrangements.
VAT – Simplification of the partial exemption and option to tax rules
Following consultation, HMRC has announced two changes to simplify the partial exemption de minimis rules and some minor changes to simplify the option to tax legislation. All the changes take effect from 1 April 2010.