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Value Added Tax (VAT)

Registration and deregistration

The VAT registration turnover limit rises to £61,000 from 1 April 2006. The deregistration limit increases to £59,000. The turnover limit for businesses to join the VAT annual accounting scheme rises to £1,350,000 from the same date. The cash accounting limit remains at £660,000 but may be increased to £1,350,000 subject to approval by the European Commission.

Reduced rate for contraceptives

The rate of VAT on contraceptive products will be reduced to 5%. The change is expected to take effect on 1 July 2006. Contraceptives that are currently zero-rated or exempt will remain so. Missing trader intra-community VAT fraud – ‘carousel fraud’

A new provision will change the person who is liable to account for and pay the VAT on the sale of mobile phones, computer chips and some other electronic items. This new rule is subject to the agreement of the European Commission.

HMRC’s power to enter premises and inspect goods in connection with VAT will explicitly include the right to mark any goods inspected. HMRC will also be able to require businesses to keep specified records relating to certain goods that they have traded, for example IMEI numbers for mobile phones. The measure is directed at goods that may be subject to VAT fraud but not limited to them. These measures take effect from Royal Assent.

Partial exemption

HMRC will ‘consult informally’ on two proposed changes to the VAT partial exemption regime. One would require businesses to declare whether a proposed special method is ‘fair and reasonable’ before HMRC gives approval for its use. The change would enable HMRC to recoup VAT that has been incorrectly claimed where the business should have known that the method was not fair and reasonable. The other would facilitate ‘combined methods’ that cater for the recovery of VAT relating to overseas supplies.

Finance agreements

Finance companies will no longer be entitled to treat returned goods as outside the scope of VAT when they are sold for a second time and where there is a requirement to adjust the VAT charged on the initial sale. The change will apply to finance agreements entered into after 12 April 2006, where the goods are delivered after 31 August 2006.

Auctioneers’ fees

A change, effective from shortly after Royal Assent, will ensure that commission charged by an auctioneer will be taxed even if the auctioned goods are within temporary importation arrangements.

Hilton Sharp & Clarke