QUESTIONS have been raised over how exactly the government will raise more than £1bn through some of the small VAT measures that have been introduced in yesterday’s Budget.
According to the government’s figures, ‘correcting VAT anomalies’ and ‘closing VAT loopholes’ by the measures the chancellor has introduced in the 2012 Budget is expected to raise £595m and £755m respectively over the next five years – a total of £1.35bn over the period.
However Stephen Coleclough, PwC indirect tax partner, pointed out: “The Budget has targeted VAT on various products from warmed-up sandwiches to large caravans. These aren’t “loopholes being closed”, these measures concern cases that HMRC has lost in the past, so the government is changing the law.
“But I am surprised at the size of the numbers, particularly with the numbers concerning takeaway food and catering premises – not so much with the initial numbers, but at the rate of increase. “
According to the HMRC consultation document, the changes to takeaway food and catering premises is expected to bring in around £50m during 2012/13, rising to £120m in 2016/17.
Some will see these changes as highly ambitious, believes Coleclough. What could be behind such a significant increase in VAT receipts for changes to hot food and catering premises?
“Either we’re getting extremely fat in the next five years by consuming a lot more hot food, or the Government expects prices to go up significantly.”
In what Coleclough described as a “surprise move”, the government has withdrawn the VAT tax break for alterations to listed buildings, recognising the inequality in the fact that altering a listed building was not liable for VAT, yet repairing it to maintain its heritage features attracted VAT.
But rather than apply rational rules, the government has chosen to withdraw the relief altogether.
“It is expected that this will raise £35m next year, rising to £125m in 2016-17, which seems to mean the taxman is expecting people to spend an awful lot on altering their homes,” adds Coleclough.
According to the Budget 2012 Policy Costings document, the tax base used in each VAT calculation has been estimated using data from a range of sources.
For hot take-away food, data has been taken from the Department for the Environment, Food and Rural Affairs, the Office for National Statistics and commercial reports, with the tax base affected estimated at about £700m.
For alterations to listed buildings, data was taken from the Department for Communities and Local Government and local authority planning applications, with the tax base affected estimated to be about £600m.
For self-storage facilities and sports drinks, data was taken from commercial reports, with the tax base affected in the first full year of the measure is estimated to be about £200m and £70m respectively; while for hairdressers’ chair rentals, data was taken from HMRC and trade association reports, with an estimated affected tax base of £70m.
Data was taken from commercial and trade association reports for caravans, with the tax base affected estimated to be about £300m.
The proof on whether these numbers come in, and whether complexity has really been removed, will be in the pudding.
The current business rates system is over-complex and reform is needed, but reforms should focus first of all on simplifying the appeals process, particularly for businesses which are subject to business rates exemption
The CIoT has called on the government to rethink its approach to ensuring online sellers pay the correct amount of VAT.
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