2007 BUDGET SUMMARY

• Personal tax

• Corporate & Business Tax

• Employment issues

• Capital taxes

• VAT

• Environmental Measures

• Other Matters

VAT, Excise and Other Duties

VAT thresholds

The VAT registration limits increase with effect from 1 April 2007 as follows:

• the threshold for compulsory registration is £64,000

• the threshold for voluntary deregistration is £62,000.

Cash accounting scheme

The government has already increased the turnover limit for joining the cash accounting scheme from £660,000 to £1,350,000 from 1 April 2007.

Reverse charge for Missing Trader Intra Community (MTIC) fraud

MTIC fraud is a criminal attack on the VAT system. The fraud arises through contrived transaction chains involving supplies of high value goods with the tax loss occurring when the VAT charged by the seller is not paid to HMRC but can be reclaimed by the purchaser.

A reverse charge procedure was introduced in Finance Act 2006 whereby the VAT registered purchaser, rather than the seller, accounts for and pays the VAT on the supply of certain goods of a kind used in MTIC fraud. Provided that purchasers have correctly accounted for the reverse charge, they can recover this VAT in the normal way.

The planned implementation date of the reverse charge has now been announced as 1 June 2007. There are two categories of goods covered:

• mobile phones

• integrated circuit devices such as microprocessors and central processing units.

A seller will account for VAT in the normal way for goods supplied within the UK to a VAT registered business where the total value of the goods supplied together and detailed on a single invoice is less than £5,000 (excluding VAT).

Car fuel scale charges

Where an employee is provided with free fuel along with a company car, an income tax benefit in kind arises based on the CO2 emissions of the car. In addition the employer has to pay a VAT car fuel scale charge. A new system is to come into force from the start the next VAT accounting period beginning on or after on 1 May 2007. The existing VAT fuel scale charge, which is based on the engine size and fuel type of a car, will be replaced by a fuel scale charge based solely on the CO2 rating of a car.

Reduced rate for smoking cessation products

Smoking cessation products dispensed on prescription are already zero rated. A reduced 5% VAT rate for ‘over the counter’ sales of smoking cessation products will be introduced for one year and will take effect alongside the introduction of the ban on smoking in public places in England.

Joint and several liability

HMRC may direct that a business that purchases particular goods from another VAT registered business can be jointly and severally liable for VAT that remains unpaid in the supply chain. These rules can apply if HMRC presume the business had reasonable grounds to suspect that VAT would go unpaid. The list of specific goods will be extended from 1 May 2007 to include electronic equipment of a type ordinarily owned by individuals and used by them for leisure or entertainment.

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