Home > > 12 March 2008 Budget Report > Value Added Tax

Value Added Tax

From 1 April 2008 1 April 2007
Standard rate 17.5% 17.5%
Standard rate VAT fraction 7/47 7/47
Reduced rate 5% 5%
Reduced rate VAT fraction 1/21 1/21
Taxable Turnover Limits
Registration - last 12 months or next 30 days over £67,000 £64,000
Deregistration - next 12 months under £65,000 £62,000
Cash accounting scheme - up to £1,350,000 £1,350,000
Optional flat rate scheme - up to £150,000 £150,000
Annual accounting scheme - up to £1,350,000 £1,350,000

Registration and deregistration - increased thresholds

As last year, the registration and deregistration thresholds have been increased by £3,000.

From 1 April 2008, the taxable turnover thresholds have been increased as follows:

  • compulsory VAT registration i.e. if taxable turnover has exceeded the threshold in the last 12 months or is expected to do so in the next 30 days - from £64,000 to £67,000,
  • entitlement to deregister i.e. if taxable turnover in the next 12 months is not expected to exceed the threshold - from £62,000 to £65,000
  • registration and deregistration in respect of acquisitions from other EU Member States - from £64,000 to £67,000.
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Amendment to the exemption for fund management

This change will only affect fund managers and providers of fund administration services. It will extend the existing exemption for fund management to cover UK-listed investment entities (including investment trust companies and venture capital trusts) and certain overseas funds, and will apply to services supplied on or after 1 October 2008.

The funds defined for the exemption will be amended as follows:

  • trust-based schemes will be deleted;
  • closed-ended investment entities, which invest in securities and whose shares are included in the UK Listing Authority main Official List, will be added; and
  • funds established outside the UK, which are recognised overseas schemes under sections 264, 270 and 272 of the Financial Services & Markets Act 2000, will be added.

HM Revenue and Customs will publish draft legislation and guidance on its website during April 2008.

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Correction of errors on returns

For accounting periods starting on or after 1 July 2008, the threshold above which errors discovered on previous VAT returns must be disclosed separately to avoid the risk of a misdeclaration penalty, rather than included on the next return, has been increased.

From that date, the current threshold of £2,000 will be increased to the greater of £10,000 or 1 per cent of turnover, subject to an upper limit of £50,000. For errors above £10,000, the limit for correcting errors on the next return will be calculated by reference to net VAT turnover, Box 6 on the VAT return.

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Changes to fuel scale charges

Fuel scale charges will, as usual, be amended to reflect increases in fuel prices and to align the charge bands with those used for direct tax purposes. The new rates apply to tax periods commencing on or after 1 May 2008.

The full table of rates is available in our VAT tax rates and allowances.

Three year time limit for VAT claims.

Legislation will be introduced to make clear that from 1 April 2009 claims for over-declared or under-claimed VAT will be subject to a three year time limit.

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Transitional period for claiming VAT overpaid or under claimed

When the three-year cap for claims was first introduced in 1996 and 1997, businesses were not given a transitional period in which to claim VAT overpaid or under claimed before the changes. Through the Courts, this has been proven incorrect. Consequently, legislation will now be introduced allowing a transitional period to run until 31 March 2009.

During the transitional period, businesses that were registered for VAT between 1 April 1973 and 1 May 1997 will have the right to claim VAT overpaid or under claimed prior to the introduction of the 3-year cap. However, HM Revenue and Customs will also have the right to assess for any VAT claimed incorrectly in such claims.

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The option to tax land and buildings

New measures will be introduced to simplify the existing legislation covering the option to tax; to facilitate its revocation after 20 years, and to improve its practical administration. The new legislation will be effective on or after 1 June 2008 but revocations will not be allowed until 1 August 2009 at the earliest.

The current law and associated references will be changed by a Treasury Order laid after the Budget. This will include new appeal rights. There will also be a new public notice on the subject, which will have force of law.

The improvements to practical administration will deal with:

  • opted properties held in a VAT group;
  • opted buildings acquired for use as dwellings or relevant residential purpose and bare land acquired for construction of building for such purposes;
  • the introduction of a new option to simplify the option to tax process for taxpayers with a number of properties;
  • early revocation of an option to tax within a 'cooling-off' period;
  • the automatic lapse of an option to tax six years after the taxpayer ceased to have any interest in a property that they had previously opted to tax;
  • the ability, in certain circumstances, to exclude a new building from a previous option to tax; and
  • late applications for permission to opt to tax.
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Extension of reduced rate for smoking cessation products

To coincide with the ban on smoking in public places in England, the 5% rate was introduced last year for smoking cessation products supplied over the counter e.g. patches, gums and inhalators. Initially, the reduced rate was to apply only from 1 July 2007 until 30 June 2008. Secondary legislation will now be laid before Parliament for the period to extend beyond 30 June 2008.

The 5% rate applies to all retail sales including those made over the internet. However, such products sold on a prescription continue to be zero-rated.

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