VAT Changes

Newsletter issue - April 2012.

The Government has decided to tidy up some of the areas of VAT law where a different rate of VAT may be charged on very similar goods or services.

Food & drink

All food eaten on the premises of the supplier; 'eat-in' purchases, are subject to standard rate VAT (20%). However, the consumption area for the food may be a communal area shared with other retailers, or tables and chairs on the pavement, neither of which are technically on the retailer's premises. In these cases the rules are to be redefined so that such areas adjacent to the retailer's premises will count as 'eat-in' areas, and the food sold to be eaten there will be standard rated.

Take-away food is subject to zero-rate VAT, unless it is hot food designed to be eaten straight away such as fish and chips. Some retailers argue that the food is only hot because is has been freshly baked, so charge zero-rate VAT. The law is to be clarified so that all hot food to take-away, other than freshly baked bread, will be subject to standard rate VAT.

Soft drinks designed to rehydrate, slake thirst or give enjoyment, are subject to standard rate VAT. However, some sports drinks are claimed to have nutritional values (e.g. protein enhancers), rather than the usual thirst-quenching properties of a soft drink. Hence the manufacturers have zero-rated those drinks. The law will be changed to ensure that all sports drinks are standard rated just like other soft drinks.

Land and buildings

The letting of a discrete area of land can be exempt from VAT, if the owner has opted to exempt the land or building. Self-storage lock-ups can fall into this exemption. However, other storage facilities where the customer does not have right of entry to a discrete area cannot be exempt from VAT. The law is to be changed to ensure that self-storage facilities are subject to standard rate VAT, whether or not the owner of the facilities has opted to exempt the whole building from VAT.

Miscellaneous items

Rental of hairdressers' chairs have previously been exempt from VAT in certain cases, but will now always be subject to standard rate VAT.

Sales of caravans will be subject to standard rate VAT, but residential caravans designed and constructed for year-round living will be zero-rated for VAT.

Approved changes to listed buildings are zero-rated for VAT, but repairs to those buildings are standard rated. This encourages the building owners to alter their protected buildings rather than repair them. The law will be changed so all building materials and building services supplied for alterations of listed buildings will be standard rated.

These changes will generally take effect from 1 October 2012, but where the contract for work on a listed building had been signed by 21 March 2012, the zero rate will continue to apply.

If your business is involved in any of the above areas, please talk to us about how to apply the correct rate of VAT on all your sales.