Budget 2009
Budget 2009
The Chancellor of the Exchequer gave his Budget Speech on 22 April. The points affecting indirect taxes are set out below, together with the relevant Budget Note (BN) or other reference.
General
New Reporting Requirements for Tax Defaulters
From a date to be announced, HMRC will require those who have incurred a penalty for deliberate understatement in respect of tax of £5,000 or more to provide more information about their tax affairs for up to 5 years, to ensure they have proper systems in place to be able to make a correct tax return. They will be required to submit returns showing more detailed business accounts information, detailing the amount and nature of any balancing adjustments within the accounts.
(Financial statement and Budget report para A.162)
Corporate Transparency: Personal Tax Accountability of Senior Accounting Officers of Large Companies
New obligations on the senior accounting officers of large companies (i.e. companies other than those defined as small or medium sized in the Companies Act 2006) will be introduced with effect for accounting reference periods beginning on or after the date of Royal Assent to Finance Bill 2009. Senior accounting officers must:
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take reasonable steps to establish and monitor accounting systems that are adequate for the purposes of adequate tax reporting;
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certify annually that the accounting systems in place are so adequate, or if not to specify the nature of any inadequacies and confirm that they have been notified to the company auditors.
Large companies will have to notify HMRC of the identity of the senior accounting officer.
The new obligations will be supported by penalties for careless or deliberate failures or inaccuracies: such penalties will be applicable to the senior accounting officer personally and to the company.
Publishing the names of deliberate tax defaulters
HMRC will be able to publish the names and details of all those who are penalised for serious defaults leading to a loss of tax of more than £25,000. Currently, only the names and details of those who are convicted for tax defaults are published; those who are subject to a civil penalty remain confidential unless their appeal reaches the courts.
The measure will apply to individuals, business and companies, who are penalised for deliberate or deliberate and concealed defaults, but will not affect those who make an unprompted disclosure, or full prompted disclosure.
The criteria for publication will be defined and are linked to the penalties for:
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deliberate understatement of tax (or overstatement of losses) under FA 2007 Sch 24 (as amended by FA 2008 Sch 40);
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failure to notify and certain VAT and excise offences under FA 2008 Sch 41.
In addition to the normal right of appeal against all aspects of a penalty, taxpayers will be informed prior to publication and will be able to make representations to HMRC. Details will be published quarterly within one year of the penalty becoming final and will be removed from publication one year later.
The measure will be brought into effect from a date to be announced by Treasury Order.
Review of HMRC Powers, Deterrents and Safeguards: Payments, Repayments and Debt
The following provisions will be introduced:
● instalment payment schemes will be available to individuals and companies who either wish to spread their tax payments over time or who have not been able to pay the tax they owe on time; and
● HMRC will have a third party information power to require businesses and companies to supply contact details for tax debtors with whom HMRC have lost contact.
The introduction of managed payment plans (MPPs) is intended to help taxpayers with their cash flow by allowing them to spread their income or corporation tax payments equally over a period straddling the normal due dates. The plans will be voluntary and late payments under the plan will not be liable to interest or penalties. The relevant legislation will have effect on and after the date of Royal Assent to the Finance bill, but in practice, MPPs will not be introduced before April 2011 to allow time for HMRC to make changes to their computer and accounting systems.
HMRC will be able to collect small tax debts through the PAYE system, thus allowing taxpayers to spread their debt repayments and reducing HMRC's collection costs. Existing safeguards which limit the amounts that can be collected in this way will be preserved. The new system is likely to begin from April 2012.
Review of HMRC Powers, Deterrents and Safeguards: Compliance Checks
The new compliance checking framework, introduced by FA 2008 and applying initially to IT, CT, CGT and VAT, is extended to environmental taxes and IPT. The measures cover:
● an aligned and modernised record keeping requirement;
● new inspection and information powers; and
● aligned time limits for assessments and claims.
The record keeping requirements and information and inspection powers will be brought into effect from a date to be announced by Treasury Order, expected to be 1 April 2010. The aligned time limits for assessments and claims will not become fully operative until 1 April 2011.
Interest Harmonisation
The current range of different interest regimes for overpaid and late paid tax will be replaced by a single harmonised regime for all the taxes and duties administered by HMRC (with the exception of CT and petroleum revenue tax, where legislation to apply the regime will be introduced in the Finance Bill 2010.). For those taxes where HMRC currently charge and pay interest, rates will be aligned by Treasury order which will have effect shortly after Royal Assent. Interest on late payments of in-year PAYE is expected to be introduced, using a risk-based approach, from April 2010. Implementation of harmonisation requires changes to HMRC's computer systems and will be staged over a number of years.
Interest on late paid tax will be charged from the date that tax was due to be paid until the actual date of payment and HMRC will pay interest on tax overpaid from the date it was due to be paid (or actual date of payment if later) until the date of payment.
The rate of interest on late paid tax will differ from that on overpaid tax, but for each there will be a single rate of simple interest, and regulations will establish the basis for calculating and applying the rates.
Rates will be implemented automatically based on the Bank of England base rate, and changes to rates will be made within 13 working days after any change in the bank rate.
Quarterly Instalments Payments (QIPs) for companies will be outside this scheme and different rates will continue to apply (although alignment will apply).
HMRC Charter
HMRC will be required by legislation to prepare and maintain a charter which will set out the standards of behaviour and values to which HMRC will aspire in dealing with taxpayers. They will also be required to report, on an annual basis, on how well they are meeting those standards. The charter must be in place by 31 December 2009 and HMRC propose to launch it by the autumn.
The existence of a charter has been the subject of consultation over some months and it was confirmed in November 2008 that this would be given legislative backing.
Changes to Customs Powers
The Finance Bill will clarify the rules relating to when HMRC officers and officers of the UK Border Agency can use their powers to check EU travellers and to verify whether travellers are arriving from the EU. Officers will not need to have reasonable grounds before making checks; their checks may be selective and proportionate.
VAT
Opting to Tax Land and Buildings
The procedure for opting to tax supplies of land and buildings, in respect of which taxpayers have made previous exempt supplies, will be simplified with effect from 1 May 2009 with the introduction of a new 'automatic permission condition'. This is intended to allow more taxpayers to opt to tax without seeking prior permission from HMRC. HMRC will also withdraw a related informal extra-statutory concessions with effect from 1 May 2010, and will partly regularise another such concession from the same date.
Children's Car Seat Bases
The 5% reduced rate of VAT for children's car seats will be extended to include bases for such seats with effect from 1 July 2009.
Registration and Deregistration
With effect from 1 May 2009, the VAT registration threshold will be increased from £67,000 to £68,000. The deregistration threshold will be increased from £65,000 to £66,000. The registration and deregistration thresholds for acquisitions from other EU member states will also be increased from £67,000 to £68,000.
Change of Standard Rate
The standard rate of VAT will return to 17.5% from 1 January 2010. The 2008 Pre-Budget Report announced a temporary reduction in the standard rate of VAT to 15% for a 13 month period from 1 December 2008 to 31 December 2009. The reduction was implemented by secondary legislation effective for 12 months. Legislation will be introduced in Finance Bill 2009 for the 15% rate to apply during December 2009 and for the rate to revert to 17.5% on 1 January 2010.
Change of VAT Rate: Anti-Forestalling Legislation
The Finance Bill will include provisions to counter schemes that purport to apply the 15% rate of VAT to goods or services to be supplied on or after the date that the VAT rate returns to 17.5%. The legislation will provide that, in certain circumstances, a supplementary VAT charge of 2.5% will be due on supplies of goods or services on which VAT has been declared at 15%. This will apply where the customer cannot recover all the VAT on the supply and one of the following conditions is met:
● he supplier and customer are connected parties; or
● the supplier funds the purchase of the goods or services (or the grant of the right to receive them); or
● a VAT invoice is issued by the supplier where payment is not due for at least six months.
The above provisions have effect on and after 25 November 2008.
A supplementary charge will also apply where a pre-payment of more than £100,000 is made before the rate rise in respect of goods or services (or the grant of a right to receive goods or services) is to be provided on or after the date of the rate rise, unless the pre-payment is made in accordance with normal commercial practice in relation to such supplies when no VAT rate increase is expected. This provision will take effect from 31 March 2009, and the supplementary charge will have to be accounted for on the date that the VAT rate reverts to 17.5%.
Bingo participation fees
With effect from 27 April 2009, VAT will no longer be due on participation fees for playing bingo and other games of chance.
For other changes relating to bingo and gaming duty, see under that head above.
Changes arising from the so-called "VAT Package"
With effect from various dates commencing with 1 January 2010, a package of measures is being introduced on an EU-wide basis. These changes are intended to counter fraud, and to simplify and modernise the VAT system in relation to cross-border supplies of services. UK legislation is being adapted to accommodate these changes as follows:
1. The procedure by which a business established in one member state may seek a refund of VAT incurred in another is to be modernised. Under the new system, which will apply to claims made on or after 1 January 2010:
● businesses will submit a claim through an electronic interface in the their own member state;
● businesses will be able to submit claims up to 9 months after the end of the calendar year in which the VAT was incurred;
● tax authorities will normally be required to make repayment within 4 months and, if they fail to do so, to pay interest;
● businesses will have a right to appeal against non-payment.
The changes, as far as the UK is concerned, will be introduced by amendments to VATA 1994, s 39 and SI 1995/2518, regs 173 to 184. An amendment to VATA 1994 s 83 will give overseas businesses the right of appeal against non-payment of a claim for UK VAT.
2. UK businesses will be required to submit EC Sales Lists (ESLs) in respect of services supplied to businesses in other member states, where the customer is required to account for VAT under the reverse charge procedure. This requirement will apply from 1 January 2010. Currently, ESLs are only required in respect of intra-Community supplies of goods.
In addition, businesses will be required to submit ESLs, for both goods and services as appropriate, within 14 days (21 days in the case of electronic submission) of the end of the relevant period. The relevant period will normally be calendar quarters but, in respect of goods, will be one month if the value exceeds £70,000 in a quarter.
The changes will be made by secondary legislation later in 2009, following enabling legislation in VATA 1994, Sch 11.
3. With effect from 1 January 2010, the time of supply of services which are subject to the reverse charge is as follows:
● for single supplies, the earlier of the time when the service is completed on when it is paid for;
● for continuous supplies, the end of each billing or payment period;
● for continuous supplies which are not subject to billing or payment periods, the earlier of the time of payment and 31 December each year.
The changes to the time of supply rules will be made by amendments to the Value Added Tax Regulations (SI 1995/2518).
4. With effect from 1 January 2010, the default place of supply in relation to business to business services will be where the customer is established. The default place of supply for business to non-business supplies will be where the supplier is established (as now). This default place of supply is subject to the following exceptions:
● supplies of cultural, artistic, sporting, scientific, educational, entertainment and similar services, valuation and work on goods supplied to non-business customers – place of supply is where the service is performed (as now);
● (with effect from 1 January 2011) supplies of cultural, artistic, sporting, scientific, educational, entertainment and similar services supplied to business customers – place of supply is where the customer is established. But supplies of admission to cultural, artistic, sporting, scientific, educational and entertainment events are supplied where the event takes place;
● land related services – place of supply is where the land is situated (as now);
● short-term hire of means of transport – place of supply is where the vehicle is put at the disposal of the customer;
● (with effect from 1 January 2013) long-term hire of means of transport to non-business customers – place of supply is where the customer is established, except in the case of pleasure boats, when the place of supply is where the boat is put at the customer's disposal if the supplier has an establishment there;
● restaurant and catering services – place of supply is where the services are physically performed. In the case of such services supplied on intra-Community transport, the place of supply is the place of departure (as now);
● supplies of intermediary services to non-business customers – place of supply is where the principal service is arranged (as now);
● transport of goods for non-business customers – place of supply is where the transport takes place, except in the case of intra-Community transport, which is supplied in the place of departure;
● supply of intangible services, e.g. legal advice to non-business customers outside the EC – place of supply is where the customer is established (as now);
● supply of ancillary transport services to non-business customers – place of supply is where the service is performed;
● for non-business customers, the place of supply of passenger transport services and electronically supplied services, and the use and enjoyment provisions, remain unchanged.
Under the default rule, the business customer will be required to account for VAT under the reverse charge procedure.
The amendments will be made by amendments to VATA 1994 and the repeal of the VAT (Place of Supply of Services) Order (SI 1992/3121).
Hydrocarbon oils
Increase in duty rates
The rates of duty for the main road fuels (i.e. unleaded petrol and heavy oil or diesel) will be increased by 2 pence per litre on 1 September 2009. They will also be increased each 1 April from 2010 to 2013 inclusive, by 1p per litre above indexation in each year. The duty rates for other hydrocarbon oils will also be increased, with some increases taking effect from 1 May 2009 and others taking effect from 1 September 2009.
Alcohol duty
Drawback scheme
The 'warehousing for export' drawback scheme for alcoholic liquor will be withdrawn with effect from 1 June 2009.
Increase in duty rates
All alcohol duty rates will be increased by 2% with effect from 23 April. This will increase the duty on a pint of beer by 1 penny, and the duty on a 70cl bottle of spirits by 13 pence.
Tobacco duty
Increase in duty rates
Duty on tobacco products will be increased by 2% with effect from 6pm on 22 April 2009.
Gaming duties
Bingo and Gaming Duties changes
With effect from 27 April 2009, the rate of bingo duty will be increased to 22%. The gross gaming yield bandings for each gaming duty band will be increased in line with inflation from 1 April 2009. With effect from 1 June 2009, the monetary prize limit for exemption from bingo duty in respect of small-scale amusements provided at family entertainment centres or adult gaming centres will be increased from £50 to £70. With effect from 1 July 2009, 'remote bingo' will be made subject to remote gaming duty rather than bingo duty. The excise definitions of 'gaming' and 'gaming machine' will be clarified with effect from Royal Assent. See also under "VAT" for the exemption of participation fees.
Amusement Machine Licence Duty increases
The Finance Bill will increase the amount of amusement machine licence duty (AMLD) for all categories of gaming machines. With effect from 1 June 2009, it will also make additional classes of gaming machines exempt from AMLD, increase the stake and prize levels for Category C machines and make changes to 'special licences' and 'seasonal licences'.
Climate change levy
Relief for plastics manufacturers
FA 2000, Sch 6 will be amended to provide that facilities manufacturing certain plastic products will have a restricted entitlement to claim relief from climate change levy in return for making reductions in their omissions and/or energy use. This will apply from Royal Assent.
Recovery of relief
FA 2000, Sch 6 will also be amended to introduce a mechanism to enable HMRC to recover climate change levy where a facility that claims relief from the levy fails to meet its targets under the scheme. This will apply to certification periods starting on or after 1 April 2009.
Low Value Solid Fuel
Supplies of low value solid fuel valued at no more than £15 per tonne will become subject to climate change levy with effect from 1 January 2010.
Landfill tax
The Finance Bill will increase the standard rate of landfill tax to £48 per tonne for disposals made or treated as made on or after 1 April 2010.
The Finance Bill will also contain provisions intended to reverse the effect of a Court of Appeal decision, and to protect HMRC's access to information which they consider necessary to determine whether a taxable disposal has taken place. The provisions will come into effect on 1 September 2009.
Statutory Instruments
The Finance Act 1998, Schedule 2 (Assessments in Respect of Drawback) (Appointed Day) Order 2009, SI 2009/1022
This Order appoints 1 June 2009 as the day on which the Finance Act 1998, Sch 2, para 6 comes into force for the purposes of assessments in respect of drawback of excise duty to which entitlement is cancelled. (See also Budget 2009, BN 84 above.)
The Excise Goods (Drawback) (Amendment) Regulations 2009, SI 2009/1023
These Regulations withdraw the warehousing for export drawback scheme for alcoholic liquors warehoused on or after 1 June 2009. (See also Budget 2009, BN 84 above).
Value Added Tax (Consideration for Fuel Provided for Private Use) Order 2009, SI 2009/1030
This Order comes into force on 1st May 2009 and has effect from the beginning of prescribed accounting periods beginning on or after that date. It sets out the revised scale charges which apply in respect of the private use of fuel in motor cars. (See also Budget 2009, BN 69 above.)
Value Added Tax (Increase of Registration Limits) Order 2009, SI 2009/1031
This Order increases the VAT registration limits for taxable supplies and for acquisitions from other member States from £67,000 to £68,000 and increases the limits for cancellation of registration with effect from 1st May 2009. (See also Budget 2009, BN70 above.)
Government Publications
Revenue & Customs Brief 28/2009 VAT - Reverse charge accounting for businesses trading in mobile telephones and computer chips: renewal of EU derogation
HMRC have issued RCB 28/09 dated 21 April 2009. It states that the EU derogation which permits the UK to require a reverse charge to be applied in respect of mobile phones and computer chips is expected to be renewed (on a retrospective basis, if necessary) with effect from 1 May 2009. Affected businesses are advised to continue to apply the reverse charge even if the derogation is not approved in advance.
Consultation Document: Working with Tax Agents
HMRC have issued a consultation document, dated 22 April 2009, which explores how HMRC interact with tax agents and asks whether changes could be made that would better serve UK revenue protection, taxpayers, agents and professional bodies.
Responses are sought by 7 August 2009.
Place of Supply of Services - Changes required to implement EC Law - Response Document
HMRC have published a document which summarises responses to the consultation 'VAT Place of Supply of Services – Changes required to implement EC Law', which exposed draft legislation implementing the VAT place of supply of services element of the EC VAT Package (Directive 2008/08/EC).
Modernising Powers, Deterrents and Safeguards - Responses to consultations and explanations
HMRC have published a document which summarises responses to November 2008 consultations on "Compliance checks; Meeting obligations to file returns and pay tax on time; A harmonised regime for interest; Payment, repayment and debt." This is a programme of consultation and legislative change to provide a modern framework of law and practice for tax administration, aiming to secure the benefits of the merger of HM Customs and Excise and the Inland Revenue in terms of better customer service, greater effectiveness and improved efficiency.
Renewal of the 'Tackling Alcohol Fraud' Strategy
HMRC have announced a renewed programme of work to tackle alcohol fraud, including:
● the withdrawal of the warehousing for export element of the excise drawback system on 1 June 2009 (see also Budget 2009, BN 84 and SI 2009/1022 and SI 2009/1023 above);
● a formal consultation on reform of the excise financial securities;
● a framework of allowable journey times for duty suspended (AAD) movements; and
● bringing forward Regulations to introduce a tighter system of regulation for Registered Excise Dealers and Shippers (REDS).
Withdrawal of Extra-statutory Concessions - Technical Note - April 2009
HMRC have issued a Technical Note, dated 23 April 2009, which provides details of 10 Extra-statutory Concessions that need to be withdrawn following the House of Lords' decision in R (on the application of Wilkinson) v Inland Revenue Commissioners [2006] STC 270. The withdrawn concessions which relate to indirect taxes are as follows:
● ESC 3.08 (VAT) - Use of margin scheme for vehicle sales when incomplete records have been kept
● ESC 4.1 (IPT) - Special accounting scheme
● ESC 4.4 (IPT) - Home contents insurance
● ESC 6.01 (Excise duty) - hydrocarbon oil duty: duty paid deliveries for bonded users/distributors
European Court of Justice
R (oao TNT Post UK Ltd) v Revenue and Customs Commissioners (Case C-357/07) 23 April 2009 unreported.
Public postal services (Article 13A(1)(a))
The UK exempted all supplies of postal services by the Royal Mail, in accordance with Article 13A(1)(a) of the EC Sixth Directive. A private postal company, which provided distribution services for business mail, applied to the QB for judicial review, contending that the UK law was unfairly discriminatory, and that its own services should receive similar treatment. The QB referred the case to the ECJ for a ruling on the interpretation of the expression 'public postal services' in Article 13A1(a). The ECJ held that the reference to 'public postal services' must be interpreted as including 'operators, whether they are public or private, who undertake to provide, in a Member State, all or part of the universal postal service, as defined in Article 3 of Directive 97/67/EC'. The exemption provided for in Article 13A1(a) 'applies to the supply by the public postal services acting as such – that is, in their capacity as an operator who undertakes to provide all or part of the universal postal service in a Member State – of services other than passenger transport and telecommunications services, and the supply of goods incidental thereto. It does not apply to supplies of services or of goods incidental thereto for which the terms have been individually negotiated.'
Parat Automotive Cabrio Textiltetőket Gyártó Kft v Adó-és Pénzügyi Ellenőrzési Hivatal Hatósági Főosztály Észak-magyarországi Kihelyezett Hatósági Osztály (Case C-74/08) 23 April 2009 unreported.
Right to deduct (Article 17(2))
In a Hungarian case, the ECJ held that Article 17(2) of the EC Sixth Directive precluded 'national legislation which in the case of acquisition of goods subsidised by public funds, allow the deduction of related VAT only up to the limit of the part of the costs of that acquisition that are not subsidised'.