United Kingdom - PBR 2007: No major VAT changes announced

There were no major VAT changes in Alistair Darling’s Pre-Budget Report today, although to be fair we weren’t expecting any as indirect tax changes tend to be announced only in the spring budget.

The small change announced was in Budget Note 25, to say that secondary legislation will be introduced to ensure that renovations and alterations to residential properties that have been empty for at least two years (previously three) will be eligible for a reduced rate of VAT of 5%. This measure will take effect on 1st January 2008.

However, the tax simplification proposals do include the announcement that this autumn the Government will launch three reviews, where HM Treasury and HMRC will work in partnership with business to evaluate how a range of tax policies could be simplified. One of these initial reviews will look at how to simplify VAT rules and administration in the UK and the EU.

The tax authorities believe the areas where simplification will be of most significance to all VAT registered business are:

• Procedures associated with the election to waive exemption, or 'option to tax' otherwise VAT exempt supplies of land and non-residential buildings, an area fraught with danger for unwary businesses and their advisers;
  

• Partial Exemption and the Capital Goods Scheme, again areas full of pitfalls, many of which are simply a product of the complexity of the current rules;
  

• The frequency with which businesses submit returns – HMRC and the Treasury want to see if more businesses, including larger ones, could benefit from annual accounting;
  

• VAT retail schemes – for example, doe they actually simplify VAT accounting for retailers, does point of sale technology render some of these redundant; and
  

• Complexities requiring simplification at EU level - HMRC and HM Treasury wish to extend their existing dialogue with UK business to identify and prioritise further areas for VAT simplification in Europe.

An online questionnaire will be available later this year for those who wish to comment on these proposals.