Registration and Deregistration
With effect from 1 April 2006, the VAT registration threshold (the annual taxable turnover limit which determines whether a person must be registered for VAT) will be increased from £60,000 to £61,000. The deregistration threshold will be increased from £58,000 to £59,000. The registration and deregistration thresholds for acquisitions from other EU member states will also be increased from £60,000 to £61,000.

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 2006. The revised scale charges are as follows:

Partial Exemption
An informal consultation will be held on two changes to strengthen and simplify the special method regime.

The first change would require a business to declare that its proposed special method is fair and reasonable before gaining approval for its use. HMRC could then set aside a method that the business should have known was not fair and reasonable in order to recoup VAT that has been incorrectly reclaimed.

The second change would simplify the rules for partly exempt businesses that make overseas supplies. HMRC would be able to approve a special method that deals with the recovery of VAT on costs that relate to supplies made outside the UK that confer the right of deduction (e.g. supplies of finance and insurance made to customers outside the EU).

The Government intends to introduce the changes from April 2007.

Powers Relating to the Inspection of Goods
With effect from Royal Assent to the Finance Bill, HMRC officers will have the right to mark (e.g. by applying an HMRC date stamp) any goods inspected, and to record details of the goods by any means (e.g. by electronic scanning of barcodes). The measure is a clarification of what HMRC consider their existing powers.

Power to Direct Additional Record-keeping Requirements
With effect from Royal Assent to the Finance Bill, HMRC will have the power to direct individual businesses to keep specified records relating to goods which they have traded. The power will only be used where HMRC have reasonable grounds to believe that the records may assist in the identification of supplies where VAT might go unpaid (e.g. supplies of mobile phones and computer chips).

Failure to comply with a direction will give rise to a penalty. Both the issue of a direction and the imposition of a penalty will be appealable matters.

Taxation of Face Value Vouchers
With effect from Royal Assent to the Finance Bill, two measures are to be introduced in relation to the taxation of face value vouchers.

The first measure relates to VATA 1994, Sch 10A para 3(3) (which provides that where VAT is not accounted for on goods and services which are obtained on the redemption of a credit voucher, the supply of the credit voucher becomes subject to VAT). New rules may be introduced by statutory instrument, specifying additional circumstances in which the voucher becomes subject to VAT.

The second measure will clarify the wording of art 21 of the VAT (Place of Supply of Services) Order, SI 1992/3121. The current wording (‘a right to services’) is considered ambiguous, and it appears that the wording is to be amended to ‘a right to receive services’.

Rewrite of VATA 1994, Sch 10 (Buildings and Land)
The Finance Act 2006 will introduce enabling legislation providing for the rewrite of VATA 1994, Sch 10. A Treasury Order will provide for a wholesale rewrite of the Schedule, including consequential, supplementary and transitional provisions and amendments. The amendments will include the granting of new appeal rights.

The enabling legislation will come into effect from the date of Royal Assent to the Finance Bill. The Treasury Order will be laid before Parliament shortly after that.

Person Responsible for Accounting and Payment on Sales of Certain Goods
A new section 55A to VATA 1994 will provide that the purchaser, rather than the seller, must account for and pay the VAT due on the sale of specified goods (such as mobile phones, computer chips and some other similar electronic items).

The measure, which is intended to combat missing trader intra-community fraud, will also provide that the value of those goods is be included in the taxable turnover of the purchaser for VAT registration purposes.

Since bad debt relief will not apply, a consequential amendment will allow an adjustment of output tax where entitlement to input tax is disallowed under VATA 1994, s 26A (i.e. where payment has not been made within sixth months).

Secondary legislation will specify the goods to which the new section will apply, and any exceptions thereto.

The measure requires a derogation from the EC Sixth Directive; consequently it will come into force when other EU Member States have agreed to the proposal.

Supplies of Goods under Finance Agreements
Where goods are returned before an agreement is completed, finance companies will no longer be able to treat them as ‘neither a supply of goods nor services’ for VAT purposes when sold for a second time if VAT on the first sale can be adjusted. This will apply whether the goods are returned because the customer exercises their right to do so or the finance company exercises its rights because the customer defaults.

The change applies to all finance agreements entered into after 12 April 2006 where the goods concerned are delivered after 31 August 2006.

Auctioneers’ Fees
Following a recent decision by the European Court of Justice, UK legislation will be changed to ensure that commission charged by an auctioneer will be taxed in the same way, irrespective of whether the auctioned goods are within temporary importation (TI) arrangements or are in free circulation within the EU. Currently, the buyer’s premium in respect of goods auctioned within TI arrangements is taxed by including the commission in the valuation of the goods at final importation into the EU (i.e. at an effective reduced rate of VAT equal to 5%). Following the change, it will be taxed at 17.5%.

The revised provisions will take effect shortly after Royal Assent to the Finance Bill.

Reduced Rate – Contraceptives
The reduced rate of 5% is to apply to all sales of contraceptive products, other than those already zero-rated or supplied as part of an exempt supply of health care.

The operative date of the change is subject to Parliamentary approval but is expected to be 1 July 2006.