Value added tax (VAT)

Registration and deregistration thresholds

The VAT registration threshold will increase to £70,000 (from £68,000) from 1 April 2010. The threshold at which a business can apply for deregistration will rise from £66,000 to £68,000 from the same date.

Partial exemption and option to tax

The Government has confirmed that the basis on which partially exempt businesses calculate the amount of VAT they can recover will be simplified from 1 April 2010. Simplifications to the option to tax regime from the same date are also confirmed.

Postal services

Standard rate VAT (17.5%) will be charged on the conveyance of postal packets by the Royal Mail, including Parcelforce, from 31 January 2011. The service is currently exempt. Letters will remain exempt from VAT.

Place of supply of gas, heat and cooling

UK VAT-registered customers currently have to account for VAT as a reverse charge on supplies of natural gas received from suppliers established abroad.

The existing rules also cover electricity and will be extended to include supplies in all categories of natural gas pipeline, but will be limited to supplies involving natural gas pipelines that are located in the EU or linked to such pipelines. Relief from VAT at importation will be extended to all natural gas imported through a network. The amended rules will also apply to heat and cooling supplied through networks.

Reverse charge for emissions allowances

A reverse charge for supplies of emissions allowances will replace the interim zero rate for these services that was introduced on 31 July 2009. The charge will be introduced by extending the missing trader intra-community (MTIC) fraud rules to services (they currently apply only to goods) and will have effect from 1 November 2010.

Zero-rating of qualifying aircraft

The definition of aircraft that can be supplied zero-rated will be based on the status of the customer instead of weight and usage. From 1 September 2010, supplies of aircraft will be zero-rated only where they are used by airlines operating for reward chiefly on international routes.

‘Lennartz’ accounting

The recovery of VAT will be restricted for immovable property, boats and aircraft that are used for both business and private purposes. At present, VAT on these assets is recoverable upfront and in full, subject to any partial exemption restriction. VAT is then payable over subsequent years in respect of the private use of the asset. This is known as ‘Lennartz’ accounting after the relevant case. The measure will restrict VAT recovery to the business use proportion of the asset, excluding any private use by the taxpayer or the taxpayer’s staff. Changes to the capital goods scheme will also be introduced so that it will take account of changes in private use over later years.

The changes implement the EC Technical Directive 2009/162/EU and will have effect from 1 January 2011. As a result, rules on recovery of VAT on directors’ accommodation will be redundant and will be repealed from the same date.

Revenue protection legislation will be introduced to ensure that existing Lennartz accounting users continue to pay the VAT due under the accounting mechanism. It will be treated as always having had effect.