UK: The Budget 2013 Commentaries - VAT And Indirect Taxes

Last Updated: 21 March 2013
Article by Smith & Williamson

The commentaries below are written in general terms. Details can also be found in our downloadable Budget Report brochure, which will be available shortly. You are strongly recommended to seek specific advice before taking any action based on the information given, both in the commentaries and in the publication.

Stamp duty on shares quoted on growth markets

The Government has announced a forthcoming consultation on the abolition of stamp duty on shares quoted on growth markets such as the Alternative Investment Market (AIM) and the ISDX Growth Market. The intention is for legislation to be introduced in Finance Bill 2014.

Comment

The abolition of stamp duty would help reduce the costs of raising finance for businesses quoted on these markets.  Combined with the expansion of the range of markets which meet the criteria for investments qualifying for inclusion within an ISA (a consultation on this was announced on 13 March 2013), this can only increase the interest of investors in shares quoted on these junior markets.

VAT registration limits

From 1 April 2013 the turnover limit, beyond which compulsory VAT registration is required, is increased from £77,000 to £79,000.

The turnover limit which determines whether a business may apply for deregistration is increased from £75,000 to £77,000.

Comment

These increases are lower the corresponding increases last year which, added £4,000 to each turnover limit.

Installation of energy-saving materials for charitable buildings

As announced at Budget 2012, the reduced rate of VAT for the supply and installation of energy-saving materials will not apply with effect from 1 August 2013.

Comment

This change will have an impact on charities intending to install energy saving materials.  As the change comes into effect from 1 August 2013, the charities may wish to consider that such work is completed before this date.

Road Fuel Scale Charges

With effect from 1 May 2013, new scale charge rates will be introduced to reflect changes in fuel prices.  The new fuel scale charges will be updated in HMRC Notice 700/64, which should be available from the HMRC website and the National Advice Service.  As announced at Budget 2012, the Government will amend the law relating to fuel scale charges, bringing long standing concessions into law, withdrawing a concession relating to partially exempt businesses and simplifying the annual changes in the rates.

Changes to the place of supply rules and introduction of the Mini One Stop Shop

The Government will legislate to change the rules for the taxation of business to consumer supplies of telecommunications, broadcasting and e-services within the EU. From 1 January 2015 these services will be taxed in the member state in which the consumer is located. The change implements EU legislation that has already been agreed between the member states.

To support these changes, the Government will also legislate for the introduction of a Mini One Stop Shop from 1 January 2015. This will give businesses the option of registering in just the UK and accounting for VAT due in other member states using a single return.

Comment

Where a UK business supplied these services to private customers in other EU countries under the previous rules, they were required to charge UK VAT. Under the new rules, the UK business will be required to charge VAT in the customer’s country but the One Stop Shop will help in simplifying the process by allowing a single registration in the UK on which VAT due in other member states can be accounted for.  A ‘Q & A’ guidance note has been posted on the HMRC website.

Changes to zero-rating of exports from the UK

Amendments to secondary legislation will be introduced in autumn 2013 to extend zero-rating to sales of goods to businesses that are registered for VAT but not established in the UK, where those businesses export the goods to a non-EU destination.

Comment

These changes will treat sales to businesses who are VAT registered in the UK but have no business establishment here, as zero-rated where they arrange for the export of the goods to a non-EU destination. Under current UK law the supply to the UK VAT registered business would be standard-rated but this is not compatible with EU law.

Treatment of refunds made by manufacturers

The Government will legislate to allow manufacturers to reduce their VAT payments to take account of refunds they make directly to final consumers. There will be a consultation during 2013 to gain a better understanding of industry practices, with a view to legislation in Finance Bill 2014.

Comment

A little unclear at the moment but these could be adjustments to VAT to reflect refunds made as a result of faulty or damaged products or customer dissatisfaction.  The consultation should provide a better understanding of industry practices to support the new legislation.

Review of the VAT Retail Export Scheme (tax free shopping)

The Government will consult on options for re-designing the Retail Export Scheme to make it easier to use and understand, reduce the scope for error, improve compliance and protect the revenue.

Comment

This scheme allows refunds of VAT on goods bought in the UK by non-EU visitors who export those goods in their personal luggage.  The consultation will enable HMRC to explore the impact of a range of options, including the potential for introducing a digital scheme.

Extension of the education exemption to for-profit providers of higher education

In Budget 2012 the Government announced a review of the VAT treatment of university degree level education to ensure commercial universities are treated equally. Responses to the subsequent consultation on whether to extend the existing exemption to commercial entities supplying such education identified a number of issues with the options proposed.

Comment

The Government has listened to those who have responded and as a result will look to develop alternative options, including possible changes to the exemption for further education and will consult on these later in the year.

The announcement could mean that commercial universities will be able to benefit from the VAT exemption. The results of the consultation will be interesting.

Withdrawal of the exemption for business supplies of research between eligible bodies

In December 2012 the Government issued a consultation on the withdrawal of the VAT exemption for business research supplied by one eligible body to another. Subject to the outcome of the consultation, the Government intends to introduce secondary legislation withdrawing the exemption, with effect from 1 August 2013.

Comment

The exemption will be withdrawn from 1 August 2013 subject to the outcome of the consultation and will affect business to business supplies of research between eligible bodies.  The Government will consider the possibility of transitional reliefs.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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