VAT plans 'could affect compensation'

News Article - Tuesday, March 25, 2008

filed under: Regulatory

Further information

Plans to change the current system of VAT compensation could mean that some businesses in the UK miss out.

Under new plans from the Treasury, HM Revenue and Customs (HMRC) will no longer allow the VAT and Duties Tribunal to rule on VAT compensation levels for companies, the Financial Times reports.

Chancellor Alistair Darling unveiled plans in his 2008 Budget speech to introduce a set rate of VAT compensation. If the proposals are accepted, the current system will be replaced with a fixed interest rate, rather than allowing cases to be decided by the VAT and Duties Tribunal.

The VAT compensation system would be overhauled to institute a similar system to the current way in which overpayments of direct taxes are linked to the Bank of England base rate of interest.

Glyn Edwards, VAT consultant at CCH accounting firm, told the newspaper: "Setting an interest rate in stone will mean many receiving less compensation and will not make up for their losses during the period the tax was overpaid."

The HMRC provides an online system that allows businesses to file their VAT returns online and SME accounting software can help firms ensure that they are paying the correct amount in tax.

Ministers recently announced that VAT will no longer be charged on any charity donations made via text following a case involving SMS text based fundraiser Vir2.

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