UK Budget 2012: Summary VAT and indirect tax

March 2012
UK Budget 2012: Summary VAT and indirect tax

A number of changes were announced together with a reaffirmation of other proposed changes already in process that will be introduced later in the year.
In VAT the following changes were announced:

VAT cost sharing exemption
Following earlier announcements the draft legislation covering this welcome change for charities and universities etc. is to be included within the Finance Bill 2012.This will apply to VAT exempt bodies who share services. Unfortunately the announcement has highlighted the fact that the exemption will be more limited in scope and thereby provides for a limited use.

VAT registration and de-registration threshold changes: With effect from 1 April 2012 the registration threshold will increase to £77,000 from £73,000 and the de-registration threshold will increase to £75,000 from £71,000. Little impact here for small businesses and keeping these out of the VAT net. The registration/de-registration threshold for acquisitions from other EU Member States is increased to £77,000 from £73,000. Also announced is the introduction of an Online system for registration and de-registration including a facility for making changes to business details. This will be effective from 31 October 2012. In line with other EU Member States, the VAT threshold for registration for businesses not established in the UK will be removed from 31 December 2012.

Fuel scale charges
These are to be adjusted to reflect current fuel prices and will be effective from 1 May 2012.

VAT anomalies and loopholes
Legislation will be introduced to address long-standing VAT anomalies and loopholes, with effect from 1 October 2012. The purpose here is to eradicate where possible the anomalies in VAT where similar supplies have different VAT rates. HMRC intend by these to changes to reach agreement that the standard rate is the applicable rate in these areas and/or confirm that this is the case. A consultation process will be undertaken and interested parties views are welcomed.

The main areas of concern are:

  • Approved alterations to listed buildings: the same treatment to apply as with the VAT treatment of alterations to non-listed buildings, and repairs and maintenance for all buildings.
  • Self-storage and other forms of storage: to apply a consistency in treatment.
  • Hot food and sports drinks: to seek to apply VAT on these supplies where it currently does not apply, consideration here as to what qualifies as “hot” food.
  • Rental of hairdresser chairs: to clarify the position beyond doubt thereby avoiding future further litigation and/or dispute.
  • Holiday caravans: Ensuring that the purchase of holiday caravans is taxed consistently at the standard rate.


This is a very interesting announcement and should be monitored closely. We have witnessed the broad discussion in connection with medical services and I believe we will witness similar levels of discussion with a possibility of increased litigation among these targeted sectors. The proposed changes to the VAT treatment of certain food items, and whether they are hot or not, should result in a lively consultation process. If HMRC get their way, then a number of parties within the food sector may be caught. When considering the range and scale of reliefs currently available in the VAT system, the proposals announced do appear to fall short of the mark by quite a distance.

Other changes of note announced in VAT:
Status of public bodies: Following recent moves by the EU Commission UK legislation is to be amended to ensure it reflects EU legislation relating to the VAT treatment of public bodies when carrying out their statutory duties and when in competition with the private sector. Ireland has also fallen in line and amended its legislation and it will be interesting to see how the private sector consider the use of “competition” where they provide similar services.

Education: The Government will review the VAT exemption for providers of education, in particular at university degree level, to ensure that commercial universities are treated fairly (Finance Bill 2013).

Charitable buildings: The Government will withdraw charitable buildings from the scope of the VAT reduced rate for the supply and installation of energy-saving materials (Finance Bill 2013).

Further information on these changes is available on the HMRC website though for clarification on any of the above, how it may affect you or for your comments then please contact the VAT Practice.

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