Budget 2006


Personal Income Tax

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Capital Gains Tax

Stamp Duty Land Tax

Inheritance Tax

Corporation Tax

Business Tax

Value Added Tax

Other Measures

Tax Tables

National Insurance


Value Added Tax

Registration thresholds

>From 1 April 2006, the level of taxable turnover at which a business is required to register for VAT increases by £1,000 to £61,000. The level of predicted future turnover at which a business can deregister also rises by £1,000 to £59,000.

Scale rate charges

If a VAT-registered trader buys road fuel which is put to private use (by a proprietor, partner or employee), the trader has to account for output tax on the supply of the fuel. The fixed scale rates for this charge have been increased with effect from the first accounting period starting on or after 1 May 2006.

Last year, the government announced an intention to bring this charge into line with the income tax charges on the benefit-in-kind of providing free fuel for private use. That charge effectively penalises free use of business fuel by charging more than the benefit is usually worth. This change still appears to be at the discussion stage, and the 2006/07 VAT scale charges are intended to be in line with actual values.

Carousel fraud measures

The Exchequer has lost a great deal of money in recent years through so-called "carousel fraud", which involves the generation of VAT refunds on international trade in high value items such as mobile phones and computer chips, where someone disappears with the money before Customs can collect it. Customs' main attack on this - refusing to refund VAT to innocent traders who have been involved in dealings with fraudsters - has been ruled out by the European Court of Justice. The government now proposes to introduce a new measure to make the purchaser of such goods account for the VAT on the purchase to Customs, rather than running the risk of the supplier disappearing with it. This change requires the approval of the European Commission, but will have a significant effect on anyone who deals in such goods if it is approved.

Finance sales

Where goods have been sold under a finance agreement and subsequently repossessed, the finance company has not been required to account for VAT on a second sale of the same goods. This led to a significant VAT saving in a case where the repossession terms allowed the finance company to reduce the output tax on the original sale.

The rules will be changed for finance agreements entered into on or after 13 April 2006, where the goods are delivered on or after 1 September 2006. If the VAT on the first sale is adjusted on the repossession, the second sale will become VATable.

Auctioneers' fees

The European Court of Justice recently held that the UK's treatment of auction sales was too generous, in allowing an effective rate of 5% on the whole price paid by the customer where goods are subsequent to temporary importation. This will be changed to comply with the judgment, to take effect after Royal Assent to the Finance Bill (probably in July 2006). The "Buyer's Premium" will have to be subjected to VAT at the full 17.5% rate.


The rules on the "option to tax" for landlords have developed piecemeal over the 17 years since they were introduced in 1989. A completely rewritten version will be introduced this year in an attempt to rationalise and simplify the rules, without (intentionally) making significant changes to how they operate.

Annual accounting

The turnover limit for use of the annual accounting scheme is increased from £660,000 to £1.35m from 1 April 2006.

Tax Tip
Are you now eligible for annual accounting?


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