VAT threshold
The VAT registration threshold will be increased from £54,000 to £55,000 as from 25 April 2002. The de-registration limit will increase from £52,000 to £53,000 as from the same date.

VAT penalties
Automatic penalties will be removed from all businesses with a turnover up to £150,000.

They will now be offered help and advice when they are late with VAT payments.

Fuel scale charges
There will be changes in the rate of fuel scale charges from the first accounting period on or after 1 May 2002. Rates will be published in the revised Notice 700/64.

VAT invoices
Businesses who trade with other European Member States, or those who wish to store or transmit invoices electronically, will be affected by changes that will be implemented after 31 March 2003.

Businesses will be required to conform to a mandatory list of items that must be included on every VAT invoice.

VAT flat-rate scheme
This optional scheme will be introduced from 25 April 2002. Businesses with a turnover of up to £100,000 per annum will be able to use the scheme.

Businesses who join the scheme will determine how much VAT is due to Customs & Excise by applying an agreed fixed percentage to their turnover. This agreed fixed percentage will be based on trade classifications as laid down by Customs & Excise. There will be no input tax recovery. Possible problems will arise over differences of opinion over the fixed percentage imposed.

A new Customs Notice 733 will be issued on 25 April 2002 explaining the scheme.

VAT annual accounting scheme
As from 25 April 2002 this scheme will be simplified to allow businesses with turnover of up to £600,000 to submit VAT returns annually rather than quarterly.

There will no longer be a twelve-month qualifying period for businesses with a turnover of up to £100,000.

Bad debt relief
As from the date of Royal Assent businesses will no longer be required to notify their customers that they are claiming VAT bad debt relief. Debtors will be automatically required to repay the input tax to Customs & Excise if they have not paid their supplier within six months of the date of supply.

Businesses who make a finance charge when supplying goods can claim VAT bad debt relief in the same ratio as the total cost of goods compared with the total cost of credit. This type of reclaim was introduced by extra-statutory concession on 6 December 2001, and it has now been brought into the legislation.


As from 1 June 2002 charities that build a new annexe will be able to claim partial zero-rating depending upon the use of the annexe. Previously zero-rating could only apply if the annexe was to be used solely for a relevant charitable purpose.

Reduced 5 % VAT rate:

As from 1 June 2002 the reduced rate of 5% will be extended to the costs of the following:

· converting a non-residential property into a care home or other qualifying building used solely for a relevant residential purpose;

· converting a non-residential property into a multiple-occupancy dwelling, such as bed-sit accommodation;

· converting a building used for a relevant residential purpose into a multiple-occupancy dwelling;

· renovating or altering a care home or other qualifying building used solely for a residential purpose that has not been lived in for three years or more;

· renovating or altering a multiple-occupancy dwelling that has not been lived in for three years or more; and

· constructing, renovating or converting a building into a garage as part of the renovation of a property that qualifies for the reduced rate.

Reduced rate for the grant-funded installation of heating equipment
Currently the 5% reduced rate of VAT is applied to the installation of certain heating equipment in households, primarily the homes of less well-off people and those aged 60 and over, who are entitled to certain government or local authority grants. With effect from 1 June 2002 the 5% reduced rate is extended to the installation of factory-insulated hot water tanks, micro combined heat and power systems, and heating systems that use renewable energy. The extension reflects changes to the grant funding for installation work.

Partial exemption anti-avoidance
As from midnight on Budget Day any businesses that use the standard method to calculate their deductible input tax will have to change the way this is done. This is an anti-avoidance measure introduced to combat cases of deliberate abuse of the partial exemption rules.

Other indirect taxes

Rates of duty to be increased by 1.9% in line with inflation as from 6 pm Budget Day.

Excise duty on spirits, beer, and wine is being frozen. Rates on cider and perry are cut by 2%. Spirit-based drinks not exceeding 5.5% will be taxed at the same rate as spirits. These changes take effect as from 27 April 2002. As from 1 June 2002 small breweries will benefit from a cut in duty rate.

Betting duty
As from 31 March 2002 a 15% tax was introduced on bookmakers' gross profits.

Landfill tax
The standard rate of this tax has been increased from £12 to £13 per tonne as from 1 April 2002.

Climate change levy
Rates are to remain unchanged. As from 1 June 2002 certain businesses will be allowed to account for this levy on an annual basis rather than quarterly.

As from that date a simplified method of claiming bad debt relief will be introduced. Certain penalties will be introduced after 24 April 2002 for the issue of an incorrect certificate or the incorrect charging of this levy.

Aggregates levy
This new tax came into effect as from 1 April 2002. It applies to the supply of sand, gravel or crushed rock extracted in the UK or imported into the UK. Certain new measures are being introduced in respect of penalties and exemptions.