Welcome to Blick Rothenberg's VAT:alert. This regularly updated page contains timely information on VAT issues that might affect your business.
August 2010
Revoking the option to tax
The rules allowing an option to tax to be revoked after 20 years have been in place now for just over a year. Therefore, as time passes, more and more opted commercial property will again become eligible for VAT exemption. Any businesses that are not able to fully recover VAT should consider the landlord’s or vendor’s position before entering into contracts to purchase or let property and explore the possibility of requesting a revocation of the option to tax. In the case of new leases, even if the landlord’s 20 year period has not yet lapsed, the revocation may still become a possibility at some point during the duration of the new lease. Therefore, consideration should be given to ensuring that contracts being entered into now will allow for such revocation when the eligibility criterion is met. This is a complex area of VAT and property law and professional advice is strongly advised.
New partial exemption de minimis tests
Businesses that supply goods or services that are exempt from VAT cannot ordinarily reclaim input VAT that is incurred on related expenditure. However, where the amount of input VAT attributable to exempt supplies is below a certain threshold (the de minimis limit) no restriction will apply. The basic test to determine whether a business can recover all of its VAT remains unchanged and is as follows:
- Is exempt input VAT less than £625 a month on average AND less than 50% of total input VAT?
Two new simplified tests were made available from 1 April 2010. These are:
- Is total input VAT less than £625 a month AND is exempt income less than 50% of total supplies?
- Is total input VAT, less input VAT directly attributable to taxable supplies, less than £625 a month AND is exempt income less than 50% of total supplies?
“Total supplies” in both new tests means taxable supplies, exempt supplies and outside the scope supplies that would be taxable if made in the UK.
A business now only needs to meet one of the above tests to remain fully taxable and not have to restrict the reclaim of input VAT on purchases. The two new tests are designed to avoid the requirement to carry out a full partial exemption calculation in each VAT period. This is a welcome change as it also brings some businesses within the de minimis limits that would otherwise have lost out before. However, on first reading, the rules aren’t perhaps quite so simple.
Extended deadline for EU VAT refunds
The deadline for submitting refund claims for VAT incurred in other EU countries for the 2009 calendar year has been extended from 30 September 2010 to 31 March 2011. The extra six months has been allowed across the entire EU because some countries were not able to fully implement the new online refund procedures that came into effect on 1 January 2010. This extension does not affect claims made by businesses from outside the EU which still have to be submitted by 31 December each year.
Pop-up children’s books in danger of losing zero rating relief
Due to a recent EU decision in Brussels the import of children’s pop-up books are to be classified as toys rather than books. In addition to any impact this may have on customs duty matters, it also classifies such books as standard rated for the purposes of import VAT. This appears to be contrary to the UK’s domestic law and HMRC’s policy of zero rating the supply of most books, in particular children’s picture books. If you believe you will be affected by this ruling, again specialist advice should be sought.
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