Car Fuel Scale Charges
The scale used to charge VAT on fuel used for private motoring in business cars will be increased from the start of the first VAT period beginning on or after 1 May 2005. The revised scale charges are as follows:

Annual returns
Cylinder capacity of vehicle

Reduced Rate for Charities
The reduced rate of 5% is to apply to supplies of advice or information relating to the welfare of the elderly or disabled, and children. The relief will apply, for example, to child protection videos or expert advice on the welfare of children or the elderly when provided by charities working in those areas.

Goods and services which are currently exempt are unaffected by the change.
The operative date of the change is subject to consultation.

Reduced Rate for Air Source Heat Pumps
With effect from 7 April 2005, air source heat pumps and micro combined heat and power units will be subject to the 5% reduced rate of VAT.

Local Authorities – Reclassification of Services
With effect from 1 April 2005, certain services of a social nature (including childcare and welfare) provided by local authorities are to be regarded as non-business. Such services are currently regarded as exempt business activities, giving rise to a restriction of the VAT recoverable on related costs. The change will allow such VAT to be recovered under the provisions of VATA 1994, s 33.

The precise scope of the services covered by the change has yet to be announced, but only those services which are of a social nature and which local authorities have a special duty to provide will be covered

Avoidance Scheme Disclosure Rules
With effect from Royal Assent, businesses will be required to disclose when they use or are party to schemes that give a tax advantage that does not appear on their VAT returns, for example in relation to VAT that cannot be deducted because it relates to exempt supplies or non-business activity.

In addition, businesses will be required to disclose when they use schemes that exploit differences between the UK and another EU member state’s treatment of vouchers; and that attempt to remove the effect of an election to waive exemption on supplies of land and property.

A new ‘hallmark’ of avoidance is also being introduced, to require disclosure of schemes that make use of face value vouchers with low redemption rates.

Partial Exemption
With effect from 1 April 2005, there will be four changes to the VAT Regulations governing partial exemption.

The first change will extend Customs’ policy on the use of their existing power to serve a special method override notice. Customs will serve a notice in any circumstances where they have clear evidence that the current special method is not fair and there is a significant loss of revenue.

Secondly, there will be a requirement that in future, approval or direction of a partial exemption special method must be in writing.

Thirdly, where a special method makes no provision for how to deal with certain types of input tax, that input tax will be recovered to the extent that the goods or services on which it has been incurred are actually used in making taxable supplies.

Fourthly, the benefit of ‘rounding’ will only be available to businesses whose ‘residual’ input tax is less than £400,000 per month. Customs will no longer approve rounding up in special methods

Overpayments – Unjust Enrichment
With effect from 23 March 2005, the rules regarding unjust enrichment will no longer be limited to claims where VAT has been overpaid; they will apply to any case where output tax has been overcharged, even if the amount in question was not actually paid (e.g. because the relevant return gave rise to a net repayment).
The three-year cap will continue to apply to all claims of overpayment. However, the three-year period will commence as follows:

• where the error has been made on a return, from the end of the period covered by the return;
• where the error has been made on a voluntary disclosure, from the end of the period in which the disclosure is made;
• where the error has been accounted for in an assessment, from the end of the period in which the assessment is made;
• where the error arises as a result of a duplicate payment, from the date of the overpayment.

Supplies of Goods in Customs’ Warehouses
Under EU law, supplies of goods in customs warehouses are disregarded for VAT purposes provided that the amount of VAT which would have been due corresponds to the amount due on removal from warehouse. Exploitation of the UK legislation (VATA 1994, s 18) has meant that this condition is not always met.

Consequently, with effect from a date following Royal Assent, the Commissioners will be able to disapply the provisions of VATA 1994, s 18(1) in cases of abuse.