VAT

Registration and deregistration

The VAT registration turnover limit rises to £64,000 from 1 April 2007. The deregistration limit increases to £62,000.

Reform of VAT fuel scale charges

The basis on which businesses can recover input tax on fuel used for private motoring is changing from engine size to carbon dioxide (CO₂) emissions. This is in line with the income tax rules for employee benefits. Businesses must use the new scales from the start of their next prescribed accounting period beginning after 30 April 2007.

Fuel scale rates – quarterly

New scales apply from the start of the first accounting period beginning after 30 April 2007.

Carousel fraud

HMRC’s existing power to combat ‘carousel fraud’ on electronic goods such as computer chips and mobile phones is extended from 1 May 2007 to certain sorts of electronic equipment ordinarily used by individuals for leisure, amusement or entertainment. It allows HMRC to direct that a VAT-registered business that receives such goods from another VAT-registered business is jointly and severally liable for VAT, if the business had reasonable grounds to suspect that VAT would go unpaid elsewhere in the supply chain.

Other VAT changes

• Where a business is transferred as a going concern after 31 August 2007, the seller will retain the VAT records, except in cases where the buyer takes over the seller’s VAT number.
• Smoking cessation products will become liable to VAT at the 5% reduced rate for one year from 1 July 2007.
• New rules will shorten to ten years the period over which VAT charges on non-business use of land and buildings are paid. The legislation, which follows decisions in the European Court of Justice, will take effect from 1 September 2007.

Tax Tip Switch to the flat rate VAT scheme for small businesses if your business has few costs and overheads, and your turnover is less than £150,000 a year. The VAT you pay is calculated by multiplying your gross sales by a flat rate determined by the business sector you work in. Purchases are ignored, so there are no complicated VAT set-off calculations. If you start to use this flat rate VAT scheme in your first year of VAT registration, the flat rate you use is reduced by a further 1%, so the savings are even greater.