Value Added Tax

VAT avoidance scheme disclosure rules

With effect from Royal Assent the rules are being tightened to ensure the disclosure of schemes that give businesses a tax advantage which does not appear on their VAT returns, such as VAT that cannot be deducted because it relates to exempt supplies or non-business activity. In addition businesses will be required to disclose when they use schemes:

• that exploit differences between the UK and another member state's treatment of vouchers and with schemes that use face value vouchers with low redemption rates.
• which attempt to remove the effect of an election to waive exemption on supplies of land and property.

VAT partial exemption special methods

From 1 April 2005, Customs will have increased powers of override where they have evidence that a current special method is unfair and there is significant loss of revenue. Amongst measures introduced approval will have to be obtained in writing, removing the risk of unwritten approval for inappropriate special methods.

Local authorities

From 1 April 2005, local authority provision of certain services, such as childcare and welfare, will be reclassified as non-business rather than exempt activity for VAT purposes. It is intended that this will remove the restriction on VAT refunded to local authorities when they provide these services.

Reduced rate of VAT - energy saving materials

The list of energy saving materials carrying the reduced rate (5%) will be extended, from 7 April 2005, to include air source heat pumps and micro combined heat and power units. The reduced rate covers installation in all forms of residential accommodation and certain charity buildings.

Reduced rate of VAT - welfare goods and services

Customs will extend the reduced rate of VAT (5%) to advice or information intended to promote the welfare of children, the elderly or the disabled by charities operating in those areas. Examples include child protection videos or expert advice on the welfare of children or the elderly. The operative date is subject to consultation.

Unjust enrichment

The defence of unjust enrichment is available to Customs in most cases where an incorrect VAT charge has been passed on to customers. Previously, this defence applied only to claims where businesses had overpaid VAT. For claims submitted after 23 March 2005, Customs' defence of unjust enrichment can be extended to all claims.