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VATcination: the definite and the possible VAT announcements in this year’s Budget

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The definite

We know that the government will legislate to change the rules for the taxation of supplies to consumers of telecommunications, broadcasting and e-services. From 1 January 2015, these services will be taxed in the member state in which the consumer is located and consequently, UK consumers will pay the UK VAT rate on all downloads, including e-books, music and film.

To avoid having to register for VAT in every member state, affected e-businesses will have the option of registering in the UK and accounting for VAT due in other member states using a single UK return.

These measures are expected to impact up to 34,000 businesses, around 5,000 of which are not currently registered for VAT in the UK. According to the Office of Budget Responsibility, the UK will however benefit from an additional £300m in additional VAT revenue in the first full year of implementation.

General betting duty, pool betting duty and remote gaming duty will also be amended and from 1 December will charged on a place of consumption basis.

Additionally, legislation will be announced allowing manufacturers and other businesses considered the first supplier in a supply chain (such as importers and wholesalers) to adjust VAT on sales for any refunds for faulty or damaged goods.

The possible

Could we see a wider application of the 5% reduced VAT rate to the agricultural production, repair, renovation and maintenance of housing, hospitality, leisure and tourism sectors? In light of recent House of Commons debates (particularly regarding flooding and tourism), these sectors (and MPs) are continuingly lobbying the chancellor to lower VAT rates, arguing that this would stimulate demand and support increased employment (and subsequent direct taxes).

And what about extending VAT refunds to charities that deliver public services which replace or supplement state provisions; to search and rescue providers; and to extending a similar VAT refund mechanism to the non-business activity of charitable providers of NHS services? The Fair Playing Field review considers how the public (and public purse) could be better served by ‘contracting out’ public services. By being able to recover VAT on associated costs, services could be provided in a more cost effective (and price competitive) manner, while at the same time clamping down on a recognised ‘VAT scheme’, resulting in a fair and equitable taxation policy and investment strategies resulting in positive growth in the jobs market.