A summary of those 2012 budget anomoly changes

[Anonymous]

As we’re now in October, it’s a good time to remind ourselves about the VAT changes introduced in this year’s budget, most of which take effect on 1 October.

I thought it was interesting that the Chancellor announced these changes as “amending borderline anomalies”, rather than coming out with the fact that the changes will all result in additional tax revenue for the government. I couldn’t help but notice that none of the changes resulted in any VAT reductions!

Work on listed buildings

The first change relates to the fact that “approved alterations” to listed buildings were previously zero-rated whilst most alterations to other buildings and repair and maintenance of the listed buildings is liable to VAT at 20%.

The government apparently thought that this rule encourages people to alter listed buildings rather than simply repair them. I’m not sure why they thought that people would want to incur the additional cost and upheaval of alteration work simply to save on VAT – in my experience most people only spend money on alterations if it’s necessary for the upkeep of the property or to install updated facilities, such as new plumbing systems.

Either way, to prevent this – and with the helpful side benefit of increasing the tax revenue – HMRC have confirmed that with effect from 1 October the following changes apply:

• the zero rate of VAT for approved alterations to protected buildings is withdrawn; and
• the zero rate is also be withdrawn for the first grant of a major interest in a substantially reconstructed protected building in circumstances where the zero-rating relies on three-fifths of the work being approved alterations.

There is some transitional relief for these changes, which applies until 30 September 2015, when certain contractual arrangements and/or work was in place prior to 21 March 2012. The three-fifths rule has been replaced by a “shell” test where the zero-rating only applies in the case of properties which are rebuilt inside an existing listed set of walls. Also, the government has also announced relief for work carried out to places of worship under the existing grant scheme.

To prevent avoidance, HMRC also announced anti-forestalling legislation designed to prevent planning schemes such as those were zero-rating would apply to supplies where the payments were made between 12 March and 30 September but the work was not carried out until after 1 October or later.

If you’re affected, you may be able to take advantage of the reduced rating that is available for certain conversions and refurbishments; or zero-rating for the sale of certain converted properties.

For further information, see the HMRC Info Sheet 10/12 http://tinyurl.com/bl9w4sg and 09/12 http://tinyurl.com/d9296b7

Self-Storage

HMRC also used the opportunity to ensure that we’re all paying VAT for renting space for storage of goods, rather than it being exempt as a supply of land.

They announce that from 1 October the provision of space used for the self storage of goods in structures such as containers, units or buildings is standard-rated.

So no more VAT-free storage for those of us renting those small units as overflow storage for our personal stuff.

While this means that we’ll be paying more for storing our personal effects, one further effect is that the owners of such storage facilities should be entitled to recover some VAT on their costs as a result of the introduction of VAT on their income. This would include VATon their normal running costs and on the purchase of properties that qualified under the Capital Goods Scheme (i.e. costing £250,000 or more). Special CGS rules have been announced to help affected businesses recover VAT on such properties. So if you have clients who provide self-storage, this is an opportunity for them to claim back some VAT from HMRC.

As with the listed building changes, HMRC have announced anti-forestalling changes to prevent the application of exemption by pre-payments for supplies made on or after 1 October.

For further information, see the HMRC Info Sheets 04/12 http://tinyurl.com/cw6o528 and 09/12 http://tinyurl.com/d9296b7

Holiday Caravans

Currently the sale of caravans are liable to VAT at the zero-rate, if they are longer than 7 m or wider than 2.55 m, regardless of whether they are lived in all year round or only used as holiday accommodation.

From 6 April 2013, the sale of such caravans will be liable to VAT at the reduced rate of 5% if they are not manufactured to BS 3632:2005.

BS 3632:2005 is the British Standard which confirms that a caravan is designed and manufactured for continuous year round occupation and is therefore suitable for residential use. Therefore taxing caravans which do not conform to this standard introduce the tax when the caravan can’t be lived in on a permanent basis.

The original proposal was to tax such caravans at the standard rate, so the reduction to 5% is a welcome change. Of course a lot of comment has been made about the fact that the tax doesn’t apply to owners of holiday homes, which would generally cost more than caravans, so the new tax is an attack on the less well-off. Bit of a political issue but it does seem to affect those who have more modest budgets to spend on holidays.

For further information, see HMRC Info Sheet 11/12 http://tinyurl.com/cmwdcux

Sports Nutrition Drinks

In the past, sports nutrition drinks have often qualified for zero-rating because of their nutritional content on the basis of being food replacements or alternatives.

While beverages are normally standard rated, the makers of certain sports nutrition drinks challenged the liability of sports drinks on the basis that because of their nutritional content, the drinks should be classified as food and therefore entitled to the zero-rate. HMRC always felt that the zero-rating should be restricted to normal food items, not products which are designed and sold on the basis of improving and aiding sports performance or physical appearance.

HMRC have therefore amended the legislation to introduce a new provision whereby drinks are standard rated if they: “enhance physical performance, accelerate recovery after exercise or build bulk, and other similar drinks, including (in either case) syrups, concentrates, essences, powders, crystals or other products for the preparation of such drinks.”

So if you’re trying to bulk up, you might be better off spending your money on a decent steak or a drink of milk in the future.

The new liability doesn’t apply to slimmers’ replacement meals or liquid drinks for invalids.

For further information see VAT Info Sheet 15/12 http://tinyurl.com/ckjuc9j

Hairdressers’ chair rental

Hoping to put an end to the long term problems with hairdressers and income from chair rental, the rules have been changed to confirm that chair rental is standard rated.

For further information see VAT Info Sheet 13/12 http://tinyurl.com/bu6hso5

And finally, those pasties…….

Well we all knew that there would come a time when HMRC would challenge the zero-rating of our hot pasties.

In the past, tribunals have generally accepted that supplies of “hot pasties” would not be regarded as “hot food” for the purposes of VAT for a variety of reasons; the main one being that they were not “hot” when supplied to customers and only warm because they retained heat during the cooling off process.

So the Chancellor decided to extend the liability to any food that is served hotter than ambient room temperature. And what a palava it caused. Scenes of politicians of all shapes and sizes consuming hot pasties at railway stations, airport, outside bakeries, anywhere they could get a camera and a word to the press for a bit of publicity.
 

And lots of lobbying succeeded in having the proposal watered down. Now those pasties and other “hot” food is only standard rated if it is hot when served (above ambient room temperature) AND one of the following tests applies:

Test 1: It has been heated for the purposes of enabling it to be consumed hot (ie the current test).
Test 2: It has been heated to order.
Test 3: It has been kept hot after being heated.
Test 4: It is provided to a customer in packaging that retains heat (whether or not the packaging was primarily designed for that purpose) or in any other packaging that is specifically designed for hot food.
Test 5: It is advertised or marketed in a way that indicates that it is supplied hot.

Thankfully a bit of common sense. Mind you I don’t think we’ve seen the last of this subject. The subject of “ambient room temperature” is always a bit of a minefield. Plus I can see lots of arguments about when the new tests will apply.

Anybody with a suspicious mind might think that this issue was included in the budget to create a bit of a buzz and detract attention from something a lot more serious…….

Finally, the term “premises” has also been extended to include “where food is supplied include any area set aside for the consumption of food by the food retailer’s customers, whether or not the area may also be used by the customers of other food retailers.”

This covers those food courts and similar places in shopping malls, airports etc.

See VAT Information Sheet 12/12 for further information http://tinyurl.com/cbamqmz

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