VAT changes could bring clarity for profession

VAT CLARITY announced in the budget has been welcomed by the profession.

The Chancellor announced he would close “loopholes” in VAT which could see hairdressers charged for their chairs and bakeries charged for warming up food.

The budget notes say VAT will apply to the sale of hot food, cold food consumed on supplier premises, sports drinks and to the rental of hairdressers’ chairs.

BDO’s tax manager Ross McKay said: “This could provide clarification for the accounting industry on something which has been a very disputed area.”

“People have talked about anomalies associated with hot food for years,” he added.

However others in the profession claim it will add increased costs to city workers.

Stephen Coleclough, tax partner, PwC, said: “This is a small step in the right direction in simplifying indirect taxes. However, it will impact those who buy their lunches on daily basis, such as office workers, who will be hit with a 20% hike in the cost of their lunch and some will question a VAT increase on sport drinks in the Olympics year when the government is trying to boost take up of sport.”

The government expects the closing of VAT loopholes to net £75m in 2012/13, £155m 2013/14, £165m 2014/15, £170m 2015/16, £190m 2016/17 for the Treasury.

All food above “ambient air temperature” will be subject to VAT.

Ian Heap, tax technician BDO, said the change could mean that Waitrose heated chicken will be charged VAT and other bakery type businesses such as Greggs could see them having to charge customers.

Other caught up in the closure of the loopholes include self-employed hairdressers that currently hire a chair in a salon or barber. They will now have to fork out VAT for that privilege, where previously they were exempt.

The Chancellor also announced the VAT threshold for companies to register would increase to £77,000 from £73,000.

BDO’s McKay explained this could be viewed as a move towards aligning businesses with a simplified accounting system which is likely to be introduced next year.

It was announced today a simplified version of accounting known as cash accounting could be used by all unincorporated businesses, usually self-employed and partnerships, with revenues of less than £77,000.

The consultation on the simplified accounting was released today and could come into effect as early as April 2013.

However a consultation on the VAT changes and thresholds was also released today and is due to end on 4 May. The Chancellor hopes the changes will take effect from 1 October 2012.

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