VAT, Excise and Other Duties

VAT thresholds

The VAT registration limits increase with effect from 1 April 2005 as follows:

• the threshold for compulsory registration is £60,000
• the threshold for voluntary deregistration is £58,000.

Avoidance scheme disclosure rules

New rules are to be introduced requiring businesses to disclose when they use or are party to schemes that give a tax advantage that does not appear on their VAT returns, eg in relation to VAT that cannot be deducted because it relates to exempt supplies or non-business activities.

Other VAT measures

• Changes to the partial exemption scheme rules which will affect those businesses using a ‘special method’. In addition the benefit of rounding up in the standard method for large businesses whose residual input tax is more than £400,000 per month is removed.
• Local authority provision of certain services, such as childcare and welfare, will be reclassified as non-business rather than an exempt activity for VAT purposes from 1 April 2005. This will remove the restriction on VAT refunds.
• An extension to the list of energy saving materials qualifying for the 5% reduced rate on installation.
• Extending the ‘unjust enrichment’ provisions so that no business can unfairly benefit from charging too much VAT.
• Consultation on the introduction of a 5% reduced rate of VAT, for welfare charities and ‘state regulated’ welfare providers, on certain services in connection with the welfare of the elderly, disabled or children.
• The government is seeking to agree a 5% rate on the VAT costs incurred by charities in the construction, renovation and maintenance of memorials. In the meantime an interim grant scheme will be introduced.
• The extension of the listed places of worship scheme for three years until 2007/08 unless a permanent reduced rate is achieved earlier.
• Proposals to reform the VAT fuel scale charge to a CO₂ emissions basis.

Vehicle Excise Duty (VED)

VED is frozen for the four least polluting CO₂ bands and increased by the standard £5 for the two most polluting bands, as well as for cars and light goods vehicles of over 1549cc registered before 1 March 2001. Changes take effect for licences commencing on or after 1 April 2005.

Fuel duty

Excise duty rates on main road fuels will be increased by 1.22 pence per litre in line with inflation from 1 September 2005.

Landfill tax

The standard rate of landfill tax has been increased to £18 per tonne from 1 April 2005. The lower rate for inactive waste remains at £2 per tonne.