Budget Alert 2013: Indirect Tax
This section looks at the main changes to indirect tax law announced in the Chancellor's Budget.
- VAT: Changes to registration and deregistration thresholds
The VAT registration and deregistration thresholds for UK businesses have been increased.
From 1 April 2013, the VAT registration and deregistration thresholds will increase by £2,000 to £79,000 and £77,000 respectively.
The increase in the thresholds is generally in line with inflation.
- VAT: Road fuel scale charges (RFSC)
The scale rates for determining the VAT due from businesses providing road fuel for employees' private use have been revised. The new rates will increase by less than 2% for VAT accounting periods beginning on or after 1 May 2013.
As announced in the Autumn Statement 2012, with effect from 1 February 2014 the annual revalorisation of RFSC, which currently requires an annual Statutory Instrument as part of the Budget process, will automatically be calculated by HMRC and taken out of the Budget process by legislation introduced in Finance Bill 2013. Two existing extra-statutory concessions currently applied in this area will also be put on a statutory footing from the date of Royal Assent to the Finance Bill.
A third concession relating to private use of fuel by partly exempt businesses will be withdrawn from 1 January 2014.
Partly exempt businesses affected by the withdrawal of this third concession should consider agreeing a partial exemption special method with HMRC that allows for full input tax recovery on road fuel used for private purposes when RFSCs are paid.
- VAT: Changes to place of supply rules
New EU VAT place of supply rules taking effect from 1 January 2015 will be incorporated into UK law in the Finance Bill 2014. This will affect business-to-consumer sales of telecommunications, broadcasting and electronic services (such as downloaded music, films and games) to customers in other EU countries. These will be taxed in the country of the customer instead of the supplier's country.
To reduce the compliance burden for affected businesses a simplification measure (known as the Mini One Stop Shop) is being introduced. This provides an option for businesses to register once in the UK and account for all EU VAT through a single online return rather than having to register in multiple jurisdictions.
These changes are being introduced across the EU to ensure that VAT is payable in the country of consumption without businesses having to register for VAT in every country where they have customers.
HMRC has been working closely with large UK businesses and their representatives to address the practical implications of the new 2015 rules and the Mini One Stop Shop. HMRC now wishes to hear from SMEs and proposes to establish a stakeholder group to represent them.
These changes mean that sales by non-EU and EU businesses to EU-resident customers will be subject to the same VAT treatment. Moreover, there will no longer be any VAT advantage in the supplier being located in a low-VAT jurisdiction.
Affected businesses should consider the commercial and practical implications of the changes including the impact on systems and processes.
- VAT: Changes to zero-rating of indirect exports of goods
The Government is extending zero-rating to sales of goods to businesses that are registered for UK VAT but not established in the UK, where those businesses arrange for the goods to be exported to a non-EU destination.
The UK VAT Regulations currently provide that zero-rating cannot be applied to sales of goods intended for export where they are supplied to a customer who is registered, or required to be registered, for UK VAT. The Government accepts that this is not compatible with EU law and is now intending to consult on legislation that will allow zero-rating for sales of goods to businesses which are VAT registered in the UK, but are not established in the UK.
Depending on the exact wording of the new legislation, this should be a welcome simplification for exporters – in particular for those operating in certain high volume/high value export sectors (including commodity trading) where there have been registration and cash tax implications for trades out of the UK. We expect businesses will still be required to meet evidential requirements to prove that the goods have left the UK.
- VAT: Extension of the education exemption to for-profit providers of higher education
Alternative options to the proposed extension of the education exemption to for-profit providers of higher education are being considered and a further consultation will take place later in the year.
In September 2012, the Government undertook a consultation which considered the case for extending the VAT exemption to commercial providers of degree level higher education. The Government has now decided to broaden the scope of this review and consider further education as a whole, with a view to developing alternative options which it will then consult on. It is expected that this second consultation will take place later on this year with a view to changes being included within a future Finance Bill.
A review may be required of the education VAT exemption in order to find a suitable solution to ensure equitable treatment between not-for-profit providers and commercial providers of higher education.
- VAT: Treatment of refunds made by manufacturers
The Government intends to legislate to allow manufacturers to reduce their VAT payments to take account of refunds they make directly to final consumers.
Finance Bill 2014 will include a power to make regulations that allow manufacturers to reduce their VAT payments to take account of refunds they make directly to final consumers. This includes refunds made as a result of faulty or damaged goods or customer dissatisfaction. The Government has indicated that it will consult to gain a better understanding of industry practices in order to support the design of the new legislation.
The situation where a manufacturer makes a refund direct to the end customer (rather than through the original supply chain) is not currently covered in UK legislation. Businesses should welcome the increased clarity and certainty that new legislation should bring to the relevant VAT accounting processes.
- VAT: Review of the 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 revenue.
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 is expected to be launched in the summer of 2013. Responses to the consultation will enable HMRC to explore the impact of a range of options, including the potential for introducing a digital scheme.
This consultation aims to help reduce the compliance burden on businesses participating in the retail export scheme. It should also assist the Government in putting measures in place to minimise loss of revenue arising from the incorrect operation of the scheme.
- VAT: Other Budget announcements
The following measures have been previously announced:
• Subject to the outcome of a consultation (which closed on 14 March 2013), the Government intends to introduce secondary legislation to withdraw the VAT exemption for business supplies of research services between eligible bodies, with effect from 1 August 2013.
• Finance Bill 2013 will exempt the NHS Commissioning Board, clinical commissioning groups, the National Institute for Health Care Excellence and the Health and Social Care Information Centre from corporation tax and include them in the s41 VAT Refund Scheme (which provides for the recovery of VAT paid in relation to certain non-business purchases). This VAT treatment will also be extended to the Health Research Authority and Health Education England in Finance Bill 2014.
• Finance Bill 2013 will remove charitable buildings from the scope of the VAT reduced rate for the supply and installation of energy-saving materials with effect from 1 August 2013.
- Air passenger duty (APD)
Despite a long campaign by the airlines, APD rates will increase for each of the bands (with the exception of Band A) by an average of approximately 3% for flights departing on or after 1 April 2014 with an additional announcement that there is no intention to set APD rates by reference to congestion levels at particular airports.
In line with previous announcements, the higher rate of APD (which is at least double the standard rate for scheduled premium class travel) will apply to certain ‘luxury’ aircraft above 20 tonnes but with fewer than 19 seats. As published by HMRC in February 2013, two new accounting schemes will be introduced:
• an annual accounting scheme where the annual APD liability is less than £500,000, and
• an occasional operators’ scheme where the annual APD liability is less than £5,000 and there are fewer than 12 flights departing from the UK per annum.
HMRC will be able to request payments on account from operators of business jets where there is a perceived risk to the Exchequer.
This measure will have a significant impact on corporate, private and on-demand aviation but the extra revenues raised are expected to be insignificant when compared to total APD revenues.
- Climate change levy (CCL)
As expected, CCL rates will increase in line with RPI with effect from 1 April 2014. In addition, the Government has announced an industry consultation on CCL exemptions to be introduced with effect from 1 April 2014 for energy used in metallurgical and mineralogical processes. Draft legislation on the proposed exemptions is expected in Autumn 2013.
- Carbon price floor: Rates and Northern Ireland exemption
The Government will set the 2015/16 carbon price support (CPS) rates equivalent to £18.08 per tonne of carbon dioxide. In addition, electricity generators in Northern Ireland will be exempt from the carbon price floor (CPF) with effect from 1 April 2013.
The CPS rate is designed to reflect the amount of carbon dioxide produced when a fossil fuel is burned. The Government will continue to provide support to energy-intensive industries to compensate for the indirect cost of the CPF in 2015/16 and further details on these measures are expected to be announced at the next spending round.
Draft guidance on the CPF is also currently open to consultation and aims to address technical changes to the carbon price floor in order to reduce the administrative burden, as announced in the Autumn Statement 2012.
The following additional technical changes were announced:
• all solid fossil fuels taxable under climate change levy will be liable to CPS rates, rather than just coal
• clarification that only coal from slurry pits at coal mines, including disused mines, is exempt from the tax, not other inferior quality coal
• clarification that the exemption from tax of stand-by generators designed to provide emergency electricity does not include those which supply, or reduce demand from, the grid
• there will be the introduction of credit arrangements for fuel moved from one power station and sent to another.
The Government appears to have introduced a significant increase in the CPS rate against a backdrop of falling EU emissions trading scheme (EU-ETS) prices as it moves towards the stated goal of a carbon price of £30 per tonne in 2020.
- Landfill tax (LFT)
The standard rate of LFT will increase by £8 per tonne to £80 per tonne with effect from 1 April 2014. The lower rate will remain frozen at £2.50 per tonne.
With effect from 1 April 2013, the maximum credit that a landfill site operator can claim under the Landfill Communities Fund will be increased to 6.8% of its annual LFT liability. This is aimed at ensuring that the total value of the fund remains at £78.1mn which can be used to improve communities around landfill sites.
- Aggregates levy
In line with previous years, the increase in aggregates levy has been delayed once again and the rate will remain at £2.00 per tonne.
An increase to £2.10 per tonne was originally intended to take effect from April 2011 but with a third delay and no revised timeframe for when it may now take effect, this should be a welcome relief for the aggregates industry.
- Gambling duty changes
Casino gaming duty bands have been revalorised in line with inflation as per previous Budgets. The revised bands will take effect for accounting periods starting on or after 1 April 2013.
As previously announced, the Government has confirmed the relaxation of bingo duty arrangements for combined bingo involving non-UK participants. Draft legislation as previously published will be introduced in Finance Bill 2013 and will be effective for accounting periods that begin on or after the date the Finance Bill receives Royal Assent.
Whilst the savings relating to the revalorisation of casino gambling duty bands may be relatively small, it will provide at least some benefit to casino operators.
- Alcohol and tobacco duties
Alcohol and tobacco duty rates will increase by 2% above inflation from 25 March 2013 with the exception of beer rates which will be reduced. Herbal smoking products will be liable to tobacco products duty from 1 January 2014.
The duty rate for spirits, wine and man-made wine, cider and perry will increase by 2% above RPI. This will add 2 pence to the price of a litre of cider, 10 pence to the price of a bottle of wine and 38 pence to the price of a bottle of spirits.
The general beer duty rate will be reduced by 2%. Duty rates on low strength beer will be reduced by 6%. Duty rates on high strength beer will be reduced by 0.75%.
Beer duties will then increase in line with RPI following Budget 2014.
Duty rates for all tobacco products will be increased by 2% above RPI. As previously announced, legally available tobacco-free (herbal) smoking products will be liable to tobacco products duty from 1 January 2014.The Government has reduced beer duty in order to support community pubs. The cost of a pint of beer will be reduced by 1 pence.
- Modernising customs and excise legislation
As previously announced, the Government is proposing changes in UK customs and excise legislation.
The main developments involve:
• Clarifying the definition of goods under customs legislation (Finance Bill 2013)
• Clarifying HMRC's power to detain goods during customs and excise investigations (Finance Bill 2013)
• Re-valuing fines on ships to ensure they remain appropriate disincentives (Finance Bill 2013)
• Modernising the Customs civil penalties scheme. After a period of consultation, the Government will legislate in Finance Bill 2014 to modernise the Customs civil penalties scheme to bring it into line with other HMRC penalties in order to create a more consistent and effective system of customs penalties.
- Vehicle excise duty
A number of measures relating to vehicle excise duty (VED) have been announced.
From 1 April 2013, VED rates will increase in line with RPI, apart from Heavy Goods Vehicles which will be frozen in 2013/14.
From 8 April 2013, the current VED exemptions for disabled drivers will be extended to individuals receiving the enhanced mobility PIP. A new 50% VED discount for individuals receiving the standard mobility PIP will also be introduced in Finance Bill 2013.
From 1 April 2014, a vehicle manufactured before 1 January 1974 will be exempt from VED and VED rates for HGVs within the HGV Road User Levy scheme will be reduced and re-structured.
Reduced Pollution Certificates (RPC) VED discounts for Euro VI vehicles are due to expire on 31 December 2016. RPC VED discounts will be replaced with grants for Euro IV-VI vehicles within the HGV Road User Levy scheme, from 1 April 2014 to 31 December 2016. The Government will end RPC VED discounts for Euro I-III vehicles within the HGV Road User Levy scheme from 1 April 2014, and for all other Euro I-III vehicles from 1 April 2016.
To reduce tax administration costs, the Government will put off-the-road declarations onto an indefinite basis. The Government will also extend the grace period to 14 days, following the payment of tax, on the non-display of the tax disc in a vehicle.
- Fuel duties
The previously announced rise in fuel duty that was due to take effect on 1 September 2013 has been cancelled.
The Government previously announced in the Autumn Statement 2012 that the fuel duty increase which was due to take effect on 1 January 2013 would be cancelled and the 2013/14 increase would be deferred from 1 April 2013 to 1 September 2013. However, the planned 1.89 pence per litre increase has now been cancelled.
The cancelled rise is intended to support households and businesses with increasing fuel costs.