With effect from 1 October 2012, the VAT relief that currently allows zero rating for certain types of work on listed buildings has been withdrawn. As a result of the Budget announcement, if work is carried out before 1 October 2012, it can still be zero rated; work done after that date will be liable to 20% VAT, unless any other relief happens to be available.

HMRC have announced a transitional relief, such that if a written contract was in place prior to Budget Day, for work to be carried out, the zero rating can still continue until 20 March 2013.

Unaffected by the Budget announcement is the 5% VAT rate for the following:

1) Where the house/flat etc. has been empty for 2 years prior to work starting;
2) Where the number of dwellings within a property is changing, up or down. For instance, splitting a property into flats, or vice versa;
3) Where a commercial property is converted into a residential property (eg a barn conversion);
4) For the installation of energy saving materials.
Also unaffected is the DIY Housebuilder’s Scheme, which allows VAT refunds in certain circumstances.

Well, what can I say, except that this is an appalling decision, to remove what little assistance there is, from those who are effectively looking after the heritage of this country. It is also appalling to dress up the change as ‘removing an anomaly’, and to suggest that “the majority of the work covered by the relief consists of extension work”. Has there been a survey of any description, that might prove this to be the case? I deal with listed properties every day of my working life and can assure you that this is not true. The majority of owners I deal with are people who care about their properties and much of what they have to do is to remove inappropriate features within the property that have been created, often before the property was listed. That work would have benefited from the VAT relief and the end result of removing the relief is that older properties will simply decay. With little encouragement to improve the property, many owners will simply put up with what they have, or else not buy a listed property in the first place. The end result will be the same – untold damage will be done to the heritage of the UK.

Any readers who care about historic property are encouraged to complain to their MP.

                          

• As ever, the VAT registration limit is rising – to £77,000 – with the new de-registration limit set at £75,000. Effective from 1 April 2012.
• Again as ever, the VAT fuel scale charge figures are going up, from 1 May 2012.
• VAT registration will move to ‘online’ only, from 31 October 2012

But now, the actual changes and what follows is a very simple summary. There is, of course, a fair amount of fine detail about the changes, which will take effect from 1 October 2012.

• Hot takeaway food: all hot food now liable to VAT if above the ambient air temperature when sold. This rules out a previous argument that, say, pasties were only hot because they were freshly baked. Not affected – bread.
• Definition of premises on which catering takes place: mainly affecting seating areas in shopping malls etc., which are shared by a number of retailers. This will mean that all food consumed in that type of location will be liable to VAT.
• Sports drinks: many such drinks have hitherto escaped VAT on grounds that there is a nutritional value. Not for much longer – all drinks of this nature will soon be liable to VAT.
• Self-storage: this measure is designed to create a level playing field between operators in this field, some of whom charge VAT, some of whom don’t. VAT will therefore be chargeable on all storage provided to the end user.
• Hairdressers chair rental: quite simply legislating to make “chair rent” in a hairdressing salon liable to VAT. This has been HMRC policy for many years, but many businesses have found ways of getting round it. All such rent will be liable to VAT unless what is being provided is a separate room, or even an entire floor of a salon.
• Holiday caravans: simply a change in the definition of a holiday caravan, preventing larger caravans being zero rated, when their main purpose is for holiday purposes. [Zero rating exists for larger, residential caravans]
• Alterations to listed buildings: currently zero rated, but this relief will now be removed. The Treasury maintain that it was being abused, as there was an incentive to change a property rather than repair it. OK, so why not simply reverse the rules and give zero rating for repairs? No prize for guessing the answer. More detail to follow.

And a couple more proposals for some time in 2013:

• Small cable car rides will be subject to 5% VAT, where the 'cabin' carries less than 10 people each.
• A review of the VAT treatment of education, at university level.
• Simplification of invoicing rules.
• Supply and fit of energy-saving materials: currently 5% VAT for various types of buildings, this will be removed for charity run buildings and village halls.

All in all, a touch controversial in certain areas as evidnced by the amount of media interest in certain items.

                          

To recap - the work would have to be carried out on a listed qualifying building, be subject to Listed Building Consent and be an "alteration".   Dictionary definition - "make something different, change".   Their narrow view, thus far, is that it simply isn't an alteration.  In fact, in a recent case that, as far as I know, is still heading for the First Tier Tax Tribunal they maintain that it is "repair and maintenance of the building as a whole".   I've found a dictionary definition of "repair" and find "...restore to good condition after damage or wear.."    I think not. 

It's difficult for me to lose my natural cynicism,  and as a result I have emailed HMRC to ask them if they really mean it.

Watch this space.

Update 9 November2011:  HMRC didn't cover themselves in glory, with their response. 

I asked "Does it mean what I think it says?"

They replied:  

“Thank you for your enquiry dated 20 October 2011. I understand that your query relates to work to a listed building.

 HM Revenue and Customs will only provide a ruling (Clearance) if after consulting the relevant guidance there is demonstrable uncertainty about how a transaction should be treated.  Guidance on how to apply for a Clearance is available via the HMRC website www.hmrc.gov.uk, at the following address: http://www.hmrc.gov.uk/cap/links-dec07.htm”

Not immensely helpful, but I persevered and received something that would pass, in a dim light, as a reasonable answer:

 “I can confirm that HMRC policy has not changed, each case is considered individually and as long as all the conditions have been met in relation to altering the fabric of a listed building zero rating can be applied.”

I have a couple of letters on file from HMRC, last year, in which they state that double glazing and secondary glazing are NOT regarded as alterations so I'll leave you to decide whether anyone is being economical with the truth.

                          

But if you ignore them you could be looking at something approaching a 30% penalty, or worse..

One final point - if you are unregistered, you should be monitoring your income on a 'rolling' 12 month basis, not simply looking at it at the end of your financial year.

                          

VAT registration limit (previously £70k) going up to £73k. [They call it "revalorisation" of the threshold - what is that all about?] This will apply from 1 April 2011.

De-registration limit going up to £71k, from £68k, again effective on 1 April.

There is one interesting change though - the "low value consignment relief" being reduced from £18 to £15. For those who don't know what this is, it is the value of individual deliveries coming into the UK that slip past HM Customs intact, with no duty or VAT being charged. This is what allows you to get cheap CDs, flowers, vitamins etc. from the Channel Islands - as it would have cost more to collect the taxes than HMRC would gain from collecting them. I don't know that this will stop the trade, but there you go.

Fuel scale charges will rise as they usually do - from
VAT periods commencing after 1 May 2011.

I would have to express surprise at mention of the wacky "Online Registration Wizard", which I believe is a posh way of saying that if you register for VAT, you must do it online. Why do they think it is better to dress it up in this way?

And I've just noticed a really cheesy mention of a plan which will "....accelerate the move of customers to access services through efficient online channels." Of course it will, especially if you make it sound as if it is of benefit to the 'customer'.

Furthermore, they are planning for everyone to do online VAT returns as well - those who have escaped thus far will be forced into it from 1 April 2012.

And finally, further down the page, there is a bit of slush about how HMRC are improving things, in which they mention "operational grit". That's what is called an error, in the real world..

                          

Goods
Buy it before 4/1/11 - VAT remains at 17.5%.

Services
Have the service, whatever it might be, performed before 4/1/11. VAT remains at 17.5%.

So far so good, but it's not rocket science is it?

OK, so the obvious trick is to get something being provided after 4/1 to be subject to 17.5% VAT. How is that done?

Plan A - pay for something in advance, be it goods or services. As long as they have the money in the bank before 4/1/11, it will be chargeable at 17.5%. Obviously this isn't terribly good advice, if there is the faintest possibility that the supplier will run off with your money, so please take care before doing that!

Plan B - Have the supplier invoice the goods or services prior to 4/1/11.

Both Plan A and Plan B are slightly offensive to H M Revenue & Customs, and as a result they have said that they won't work if any of the following apply:

a) Supplier and customer are "connected" - husband/wife/associated companies etc.; or
b) The value is greater than £100k exc VAT; or
c) The invoice doesn't have to be paid in full within 6 months; or
d) If any prepayment is funded by the supplier.

Clearly there could be other implications especially if services overlap the date of the increase.  Please let me know if you require any further information.

                          

For many years there has been a “DIY Housebuilders Scheme” in existence, within the VAT system, which was originally put in place so that DIY Housebuilders were not put at a disadvantage against individuals who had a new house built by a developer. In short, an individual would simply retain all the invoices for building materials, bundle them up and send them with a claim for the VAT incurred. HMRC would then repay that VAT subject, of course, to making reasonable checks on the legitimacy of the documents received.

If, however, an individual decided to build himself a new house which had an occupancy restriction on it – such that it would only be used for holiday purposes, HMRC would not entertain a claim, on the basis that if a developer sold such a property to an individual, it would be liable to VAT.

HMRC have now been forced to admit that this policy was incorrect, by virtue of a case that has recently been decided at what used to be called the VAT Tribunal [now, the First Tier Tribunal].

They now accept that holiday homes qualify, as long as the property is to be used by the claimant, and not let out. They have also accepted that this will also apply to situations where a non-residential building is converted into the holiday home.

And finally, HMRC are also inviting anyone who has been in the position of having a claim refused, to submit one now. This will apply retrospectively as well, to anyone who has completed such a property within the past four years and three months.

                          

Other changes are limited in their application, but here they are:
1) Flat rate scheme - a consequential result of the VAT rate change is that the flat rate scheme percentages will also be changing from 1/1/2011.

2) Aircraft: in essence, zero rating presently applies to aircraft over a certain size. HMRC are switching to a qualifying definition based on the status of the customer. This will mean that zero rating will apply to aircraft used by airlines “ operating for reward” primarily on international routes.

3) Gas, heat and cooling: a change to the ‘place of supply’ rules is proposed, which will mostly affect cross-border supplies.

4) Postal services: the only supplier to be affected is Royal Mail (Royal Mail Holdings PLC) but effectively all businesses might find that VAT is charged on certain services that were previously exempt from VAT - mostly parcel deliveries. “Social mail” remains unaffected.

5) “Lennartz” accounting: taxpayers buying assets (eg land, property, boats and aircraft) which have business and private use have hitherto been allowed to reclaim the full VAT ‘upfront’ and simply repay the private element, according to their future use of the asset. This facility will be withdrawn, with only the business element being recoverable upfront.