The Budget: Regulations are eased yet again: VAT

THE Chancellor announced a raft of technical changes to the VAT rules to soften the penalties for misdemeanours, remove more firms from the VAT net, and allow more firms the cash-flow benefit of cash-accounting for VAT.

Stephen Alambritis, of the Federation of Small Businesses, welcomed the reforms which, he said, removed power from teenage VAT inspectors who clobbered firms with penalties to boost their own performance-related pay.

For the third successive year the penalty system is to be softened. Penalties for misdeclarations, late payment and other faults by employers can be reduced according to mitigating circumstances.

The turnover threshold for registering for VAT has been raised from pounds 36,600 to pounds 37,600. Firms with sales of less than this need not register for VAT.

About 15,000 more firms will be able to cash-account for VAT. This allows them to pay their VAT liability only after they have received payment from their customers. Firms with sales of up to pounds 350,000 will now qualify, up from pounds 300,000. Larger firms are liable as soon as they invoice their customers, regardless of slow payers and bad debtors.

Traders wanting to claim VAT relief on bad debts can now do so after the debt is six months old. Previously they had to wait a year.

Changes are also introduced to crack down on fraudulent sales of gold and gold coins and to prevent the recovery of VAT on goods and services for private consumption. Relief will be extended to training providers participating in government-funded training schemes.

Zero-rating will be extended to supplies of parts and equipment for ships and aircraft in a move to help the shipping and aerospace industries.

In another small reform, the Department of Transport is to be allowed to refuse to issue vehicle excise licences for vehicles brought into the UK, where VAT or Customs duty has not been paid.