Budget 2015: The VAT agenda – what changes the Government could have considered
Tuesday, October 14, 2014
by Nick Ryan
A budget is an enormous task, that mix of balancing the books, forecasting future need and identifying options for building growth take time. Yet each year the budget preamble continues to confuse me with the constant mantra by ministers of “no decision made yet” right up to the week before.
By now the budget has been announced, the huff and puff is over and the critique begins. Over the years I have been asked by members of the press for a comment on the VAT changes (what VAT changes?) and I usually struggle with a comment on the paucity of measures introduced. At the time of writing this I do not know what changes have been announced, if any, and I often wonder what could have been done from a VAT perspective to stimulate growth or improve the current system . Therefore, these are my thoughts on some options for change that I believe might have legs and could stimulate growth and/or simplify VAT for a number of business sectors.
Travel industry: For travel service providers the continuation of the reduced rate in the tourist sector needs to remain in place as the benefits are far higher than originally expected.
For those operating under the margin scheme, the application of the higher rate to the margin seems to contradict the use of the second reduced rate applied to those services bought in to create the overall package. Therefore I would consider the following options:
• Apply the second reduced rate to the margin – this could provide a valuable breathing space to Irish travel service providers in a very competitive global industry.
• Treat the package as a multiple supply and allow an apportionment of the margin by the VAT rates applying to the elements bought in.
• Passenger transport services – apply the zero rate of VAT where the transport services are for tourist purposes; this could also create a level playing field with travel providers within the EU.
• Consider removing the differentiation between in house and bought in supplies of travel services.
Property/construction sector: Here I believe a beneficial change to stimulate growth would be to introduce a lower rate, or zero rate, to apply for the conversion of commercial building to residential use and, building works for charitable use. It has worked in the UK so why not here?
In conjunction with this there is a need to revisit the 2008 changes particularly with regard to their application for transitional properties and the impact of the Capital Goods scheme. A major problem here is when the sale is deemed to be exempt, there is no historical information and a CGS adjustment is required. As such sales are being forced down the joint option to tax route thereby bringing a property back into the VAT net when it ordinarily should not. Is it practical, in these cases, to apply the CGS adjustment calculation to either the current value or, an agreed historical market value?
For residential lettings, the loss of the waiver of exemption has created problems and perhaps consideration should be given to providing landlords with an option to tax facility encompassing a claw back adjustment requirement where the option is cancelled, the property is disposed of or, the VAT registration is cancelled.
Distance sales scheme: The nightmare for distance sellers is the requirement for multi jurisdictional VAT registrations and the fact this brings with it both increased costs in managing the registrations, inflexible approaches by tax authorities in meeting compliance requirements and cash flow problems in meeting VAT liabilities were they operate via online stores.
My proposal is to widen MOSS 2015 to allow entry into the scheme for distance sellers.
Small businesses and start ups: I would like to see a “Flat Rate scheme” introduced along the same lines as that in practice in the UK as this can reduce the VAT compliance requirements for a business.
Extension on the use of Section 56, zero rating of goods and services: Is it possible to extend the use of this scheme to fully taxable businesses? This could enhance cash flow, reduce the VAT burden and minimise VAT errors.
Business cars: Firstly the anomaly that a business using a car for 60% business use is allowed a 20% recovery on the VAT cost in purchasing the vehicle needs to be removed. Under dual use and partial exemption rules a business is entitled to deduct VAT in proportion to its taxable use. Therefore, if a business uses an office and equipment for 60% taxable use then it is entitled to a 60% refund on the VAT incurred in relation to the office and equipment. Should not this rule be applied to motor vehicles as well?
For businesses that either purchase or lease a car for their business then they should be entitled to a deduction of VAT depending on the taxable use the car is put to. Where the car is also used for private purposes then there should be an equivalent scale charge applied; the UK has a very effective scheme in place which could be considered.
This is not a wish list nor may all, or some, of these proposals/ideas be practical. Also there may be better proposal out there that can reform a VAT system that needs o catch up to the times it is used in. Let me know your thoughts and ideas and here’s to reform!
If you have any comments on the above or wish to discuss a particular VAT issue then please contact Nicholas Ryan at the VAT Practice either by telephone + 353 238838181 or email, info@thevatpractice.ie
Tags: Budget 2015 VAT changes, Budget 2015 VAT measures, Nicholas Ryan, Nick Ryan, The VAT Practice, VAT and Budget 2015, VAT comment, VAT News, vat REFORM AND THE FLAT RATE SCHEME, vat REFORM FOR THE TRAVEL INDUSTRY, VAT reforms motor vehicles, vat REFORS FOR HE PRPERTY SECTOR
Budget 2015: The VAT agenda – what changes the Government could have considered
Tuesday, October 14, 2014
by Nick Ryan
A budget is an enormous task, that mix of balancing the books, forecasting future need and identifying options for building growth take time. Yet each year the budget preamble continues to confuse me with the constant mantra by ministers of “no decision made yet” right up to the week before.
By now the budget has been announced, the huff and puff is over and the critique begins. Over the years I have been asked by members of the press for a comment on the VAT changes (what VAT changes?) and I usually struggle with a comment on the paucity of measures introduced. At the time of writing this I do not know what changes have been announced, if any, and I often wonder what could have been done from a VAT perspective to stimulate growth or improve the current system . Therefore, these are my thoughts on some options for change that I believe might have legs and could stimulate growth and/or simplify VAT for a number of business sectors.
Travel industry: For travel service providers the continuation of the reduced rate in the tourist sector needs to remain in place as the benefits are far higher than originally expected.
For those operating under the margin scheme, the application of the higher rate to the margin seems to contradict the use of the second reduced rate applied to those services bought in to create the overall package. Therefore I would consider the following options:
• Apply the second reduced rate to the margin – this could provide a valuable breathing space to Irish travel service providers in a very competitive global industry.
• Treat the package as a multiple supply and allow an apportionment of the margin by the VAT rates applying to the elements bought in.
• Passenger transport services – apply the zero rate of VAT where the transport services are for tourist purposes; this could also create a level playing field with travel providers within the EU.
• Consider removing the differentiation between in house and bought in supplies of travel services.
Property/construction sector: Here I believe a beneficial change to stimulate growth would be to introduce a lower rate, or zero rate, to apply for the conversion of commercial building to residential use and, building works for charitable use. It has worked in the UK so why not here?
In conjunction with this there is a need to revisit the 2008 changes particularly with regard to their application for transitional properties and the impact of the Capital Goods scheme. A major problem here is when the sale is deemed to be exempt, there is no historical information and a CGS adjustment is required. As such sales are being forced down the joint option to tax route thereby bringing a property back into the VAT net when it ordinarily should not. Is it practical, in these cases, to apply the CGS adjustment calculation to either the current value or, an agreed historical market value?
For residential lettings, the loss of the waiver of exemption has created problems and perhaps consideration should be given to providing landlords with an option to tax facility encompassing a claw back adjustment requirement where the option is cancelled, the property is disposed of or, the VAT registration is cancelled.
Distance sales scheme: The nightmare for distance sellers is the requirement for multi jurisdictional VAT registrations and the fact this brings with it both increased costs in managing the registrations, inflexible approaches by tax authorities in meeting compliance requirements and cash flow problems in meeting VAT liabilities were they operate via online stores.
My proposal is to widen MOSS 2015 to allow entry into the scheme for distance sellers.
Small businesses and start ups: I would like to see a “Flat Rate scheme” introduced along the same lines as that in practice in the UK as this can reduce the VAT compliance requirements for a business.
Extension on the use of Section 56, zero rating of goods and services: Is it possible to extend the use of this scheme to fully taxable businesses? This could enhance cash flow, reduce the VAT burden and minimise VAT errors.
Business cars: Firstly the anomaly that a business using a car for 60% business use is allowed a 20% recovery on the VAT cost in purchasing the vehicle needs to be removed. Under dual use and partial exemption rules a business is entitled to deduct VAT in proportion to its taxable use. Therefore, if a business uses an office and equipment for 60% taxable use then it is entitled to a 60% refund on the VAT incurred in relation to the office and equipment. Should not this rule be applied to motor vehicles as well?
For businesses that either purchase or lease a car for their business then they should be entitled to a deduction of VAT depending on the taxable use the car is put to. Where the car is also used for private purposes then there should be an equivalent scale charge applied; the UK has a very effective scheme in place which could be considered.
This is not a wish list nor may all, or some, of these proposals/ideas be practical. Also there may be better proposal out there that can reform a VAT system that needs o catch up to the times it is used in. Let me know your thoughts and ideas and here’s to reform!
If you have any comments on the above or wish to discuss a particular VAT issue then please contact Nicholas Ryan at the VAT Practice either by telephone + 353 238838181 or email, info@thevatpractice.ie
Tags: Budget 2015 VAT changes, Budget 2015 VAT measures, Nicholas Ryan, Nick Ryan, The VAT Practice, VAT and Budget 2015, VAT comment, VAT News, vat REFORM AND THE FLAT RATE SCHEME, vat REFORM FOR THE TRAVEL INDUSTRY, VAT reforms motor vehicles, vat REFORS FOR HE PRPERTY SECTOR