VAT update March 2011

Climate change levy

Changes were announced in the Pre-Budget Report 2009 to the reduced rate Climate Change Levy (CCL) effective 1 April 2011. The changes affect businesses in a Climate Change Agreement (CCA) and will:

  • amend the relief formula to reduce the amount of relief that can be claimed by businesses in a CCA from 80% to 65%
  • oblige businesses affected by the amendment to the relief formula, or any future changes to the relief formula brought about by changes to the relevant CCL reliefs, to submit a new PP11 certificate to their supplier at the time of their first annual review following the amendment
  • remove the current requirements on relief claimants and energy suppliers to send copies of the PP11 forms to HM Revenue & Customs (HMRC).

Overseas business entertainment

HMRC are requesting comment on draft legislation regarding the treatment of business entertainment. The four week consultation period is a result of the European Court of Justice (ECJ) decision in Danfoss and AstraZeneca. The ECJ case was detailed in Revenue & Customs Brief 44/10 issued November last year.

The essence of the change is to remove the restriction when recovering VAT on overseas entertainment. The closing date for the consultation is 1 May 2011. The proposed insertion in the Value Added Tax (Input Tax) Order 1992 (SI 1992/3222) article 5(1):

  • after the words 'for the purposes of business entertainment' insert 'unless the entertainment is provided for an overseas customer of the taxable person and is of a kind and on a scale which is reasonable, having regard to all the circumstances'.

After article 5(3) insert:

'(4) For the purposes of this article 'overseas customer', in relation to a taxable person, means-

(a) any person who is not ordinarily resident nor carrying on a business in the United Kingdom or the Isle of Man and avails himself or herself, or may be expected to avail himself or herself, in the course of a business carried on by that person outside the United Kingdom and the Isle of Man, of any goods or services the supply of which forms part of the taxable person’s business; and

(b) any person who is not ordinarily resident in the United Kingdom or the Isle of Man and is acting, in relation to such goods or services, on behalf of an overseas customer as defined in paragraph (a) above or in behalf of any government or public authority outside the United Kingdom and the Isle of Man.'

For further details please view Revenue & Customs Brief 09/11.

Modernising landfill tax legislation

HMRC have followed up on a consultation from 2010. The consultation published in December 2010 considered the qualifying criteria of waste material that is liable for the lower rate of landfill tax.

The revisions are made in line with the changes to the environmental policy and the implementation of the European Landfill Directive. The changes will are set to improve Landfill Taxes’ environmental effectiveness and ensure that decisions regarding the liability of different wastes are more transparent.

The order will be in force from 1 April 2011 and is called the Landfill Tax (Qualifying Material) Order 2011; it replaces the previous order that dates back to 1996. 

Dispensing Scottish doctors

HMRC VAT information sheet 05/11 made a brief appearance last week only to be replaced by the message 'this information sheet has been temporarily withdrawn pending finalisation by the Scottish Government and the Scottish General Practitioners Committee of the BMA of changes in arrangements for Scottish dispensing practices.'

The notice had highlighted that following changes in Scottish government funding from 1 April 2011 dispensing doctors who wish to recover VAT incurred on the drugs they dispense will need to register for VAT. It had also highlighted the change, the VAT registration process and some of the consequences of registration. 

It went onto say HMRC have said 'dispensing doctors in Scotland will need to consider if they should be registered for VAT from the 1 April 2011 when the funding arrangements change. Dispensing doctors who become liable to register on 1 April 2011 have 30 days from that date to apply for VAT registration. If you fail to apply for registration in time you may incur a financial penalty.' 

Clearly those who are liable to register because of their income will need to register. However, a large number of dispensing doctors may opt for voluntary registration. HMRC have said that they will be registered from the date requested in their VAT registration application.

Those who do register will need to make sure that they make sure any stock is recorded at the date of registration. This will be important as they will wish to recover VAT on any drugs in stock.

Finally, it will be important that the dispensing doctor selects the most appropriate partial exemption method from the choice of standard special or cash. So we are now left with 'this information sheet has been temporarily withdrawn pending finalisation by the Scottish Government and the Scottish General Practitioners Committee of the BMA of changes in arrangements for Scottish dispensing practices.' Further guidance will be available soon. 

VAT flat rate scheme

HMRC have compiled in one convenient place guidance of the VAT Flat Rate Scheme. The guidance covers the change to the standard rate of VAT and the amended Flat Rate percentages.

There are details on:

  • what is the Flat Rate Scheme for VAT?
  • who can and can't join the Flat Rate Scheme?
  • the pros and cons of the Flat Rate Scheme
  • working out your flat rate percentage and the VAT you need to pay
  • flat Rate Scheme percentage rates from 1 January 2010
  • flat Rate Scheme percentage rates from 4 January 2011
  • what to do if your flat rate percentage changes
  • invoicing, record-keeping and VAT Returns
  • claiming back VAT on capital assets
  • farmers, florists and barristers and the Flat Rate Scheme
  • joining and leaving the Flat Rate Scheme
  • the Flat Rate Scheme and other VAT schemes
  • other VAT accounting schemes.


Partial exemption framework for higher education providers

HMRC have issued a revised partial exemption framework for Higher Education Institutions (HEIs). Though it does not replace the content in VAT Notice 706 (Partial Exemption) and is not mandatory, HMRC indicate that adopting the principles in the framework will enable them to more readily give approval when applying for a partial exemption special method.

The framework has been complied with HMRC working with the British Universities Finance Directors’ Group, the Higher Education Funding Council for England and it takes into account a review by KPMG on Partial Exemption in the Higher Education Sector.

The framework provides guidance when forming a Partial Exemption special method particularly when:

  • determining a fair ‘value’ for supplies of grant-supported education
  • deciding when to add ‘sectors’ to a Partial Exemption method
  • deciding on how to identify and deal with ‘distorting supplies’.

The framework is available from HMRC.

VAT notices 705 and 705A

VAT Notice 705: Buyer’s guide to personal exports of motor vehicles to destinations outside EU and VAT Notice 705A VAT: supplies of vehicles under the personal export scheme for removal from EC have both been amended. They have been updated to account of the new address at HMRC used when applying to use the Personal Export Scheme.

VAT notice 725: the single market

VAT Notice 725: the Single Market has been amended to reflect the changes to the EC Sales Lists (ECL) requirements effective 15 March 2011. The changes are in relation to the reporting requirements and the applicable thresholds included in Section 17 of VAT Notice 725.

VAT margin schemes

A further three VAT notices have been amended that fall under the margin schemes heading and have been updated for the standard VAT rate rise.

VAT Notice 718: the VAT Margin Scheme and global accounting

VAT Notice 718/1: the VAT Margin Scheme on second-hand cars and other vehicles

VAT Notice 718/2: the VAT Auctioneers’ Scheme

VAT notes

HMRC have issued the first VAT Note of 2011 and it contains a concise summary of changes announced or coming into force shortly. The Note includes details of:

  • online filing, all VAT businesses to file online and pay electronically from April 2012;
  • two further VAT toolkits;
  • changes to Lennartz accounting and the Capital Goods Scheme;
  • change in the tax treatment of business entertainment of overseas customers;
  • changes to the option to tax for supplies of land and buildings;
  • HMRC’s response to the ECJ decision in AXA Ltd
  • change of policy of electronic lottery and bingo machines;
  • changes to the payments on account regime;
  • changes effecting businesses that supply hydrocarbon oils in tax warehouses.

VAT rate change

The standard rate of VAT changed on 4 January 2011 to 20% (previously 17.5%). HMRC have put together a number of sources to help businesses deal with the change conveniently in one place.

Within the resources available you will find details on:

  • how to account for the VAT rate change
  • sales that span the change in rate
  • VAT invoices raised or deposits received before 4 January 2011 for sales you make afterwards
  • special VAT schemes for small businesses
  • payments on account
  • what VAT can you reclaim
  • how to complete your VAT return
  • how to correct an error on your VAT return.


Tonnage tax

HMRC have released Revenue & Customs Brief 07/11 discussing the tonnage tax and qualifying ships. This applies to companies that have elected to compute their Corporation tax profits from maritime transport activities under tonnage tax rules.

The changes concern the ‘expected year’ principle as the European Union/European Economic Area (EU/EEA) have seen a significant decline tonnage in the last three years. The tonnage tax year starts 1 April 2011 and cannot be used as an ‘expected year’. This is an issue for you if you either are:

  • a company in tonnage tax
  • starts to operate a ship that is registered in a EU or EEA member state
  • during financial year 2011
  • then they must carry out a ‘flagging’ test to determine whether the ship qualifies for tonnage tax.