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Value Added Tax
2004 Budget Announcements:Changes to the cash accounting scheme In addition to increasing the turnover limits for participation in the scheme to £660,000, Customs has announced a relaxation to the way in which VAT must be brought to account when businesses leave the scheme. Businesses which either voluntarily leave or are no longer entitled to remain in the scheme are to be allowed a further six months after leaving the scheme before they must account for VAT on debts outstanding at the time they leave. Furthermore, businesses leaving the scheme will now be able to claim bad debt relief on bad debts over six months old in the period they leave. Both measures are to be introduced with effect from 1 April 2004. Disclosure of VAT avoidance schemes
Measures are to be introduced, soon after Royal Assent, to require that businesses with a turnover in excess of £600,000 inform Customs of instances where they use specific VAT avoidance schemes. Customs are to publish a list of specified schemes. Failure to disclose will incur a penalty of 15% of the tax avoided. The measure also requires that businesses turning over in excess of £10 million disclose schemes that have the hallmarks of avoidance to Customs. Furthermore, those who promote or devise such schemes will be invited to disclose them to Customs voluntarily. Failure to comply with this measure will incur a flat rate penalty of £5,000. Anti-avoidance measures
Several measures are being introduced to combat various structures which Customs perceive to be aimed at VAT avoidance. Amongst these are measures to address the value at which car dealers account for VAT on the use, by their employees, of demonstrator cars. Historically, certain car dealers have accounted for VAT on a nominal sum for the private use of such vehicles thereby avoiding the full amount of VAT due on the private use of the cars. Customs are to introduce new valuation measures to ensure that VAT is accounted for on an ‘open market’ value. The measure will come into effect by an Appointed Day Order after the date of Royal Assent. In addition Customs have targeted measures to close schemes which use the current VAT group entry requirements to allow jointly owned entities to join a VAT group even when the jointly owned entity is effectively in place for the benefit of an external third party. The new measures, effective from 1 August 2004, aim to place additional constraints upon the eligibility to join a VAT group which should close this loophole. Furthermore, measures are to be introduced, with effect from 18 March 2004, to counter specific complex structures which aim to avoid irrecoverable VAT on the purchase of land or buildings by businesses unable to recover most or all the VAT they incur.
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