There were relatively few VAT announcements in this budget.

Changes will be made relating to the place of supply rules to prevent what is perceived as avoidance in the insurance industry and the government announced their intention, following a review, to introduce use and enjoyment rules for advertising in two years.

Prior to the budget the Government had announced its tax lock which is designed to prevent changes to the rates of VAT or remove items from the zero or reduced rates.  Quite how this will work if the change is forced because of the courts is not clear to me. How for example will they cope with the recent CJEU judgment that found the UK reduced rate for energy saving materials based on a social policy arguemnt was illegal. Will they just say Ya boo and have the UK incur a weekly fine?

But if course its quite possible this will be the reaction because HMRC don’t have the staff to do anything else. In the Autumn statement last year it was announced that HMRC would be immune from cuts as it ended to concentrate on avoidance and raising money. Yet in June this year it was announced that there would be a 5% budget cut of £80 million and the red book shows further cuts. With surveys showing that understandably HMRC staff morale is rock bottom its ability to run the tax is reducing. VAT is a self assessing tax meaning most comes in automatically, in part because taxpayers know theres a chance they will be caught and fined if they don’t follow the rules. How true this is now I am not sure. The concern must be that there is a tipping point when compliance falls off as there has been one cut too many and businesses realise that HMRC are unlikely to ever visit. Since an increase in properly paid and trained staff will actually raise money I find it all rather strange.