Three VAT anomalies in the Budget that could affect a large number of small businesses.

The budget has been and gone - a lot of it had been leaked but still there was an uproar over the tax on hot foods and the raid on allowances for the over 65s.

But there are some less obvious changes which George Osborne has announced and these include a clamp-down on VAT anomalies.

Here we examine three areas of the Budget which you may not have considered but could affect you and your clients and if all goes to plan will be implemented from 1 October 2012.

What are you storing and where?

All businesses offering self-storage will have to charge VAT following George Osborne’s Budget announcement. If you offer storage facilities to your clients, you’ll need to understand the implications of these changes and what they mean.

Previously organisations, businesses and individuals could supply storage facilities and could avoid charging VAT on storage/space by allocating their customers a discrete piece of land – qualifying for the VAT exemption. However other types of businesses e.g. removal companies have always had to charge the standard rate of VAT (as the area offered wasn’t discrete) so this measure has been put into place to make the system fairer and consistent. Some business will not be affected because they’ve opted to tax the land and this overrides the issue.

If you’re a small business owner and you’re using untaxed self-storage space, you will be affected. It could be that the rates of untaxed storage facilities will rise even if some storage companies absorb the 20% VAT rise. The government believes this was a fairly big loop hole in the system and the change of rules will affect significant numbers of businesses nationwide.

Renting that chair – stylists beware?

This new regulation will affect smaller, independent hairdressers (compared to the more well-known nationwide hairdressing salons that usually employ full-time members of staff). Independent boutiques will feel the full force of these changes if they are hiring out chair space in their premises to freelance/self-employed stylists and hairdressers.

The question raised is: is the self-employed stylist/ hairdresser occupying land exclusively for his or her own work? In some cases the salon owners are not charging VAT, so they are claiming that the supply to the stylist is VAT exempt.

HMRC has consistently argued that in most cases, self-employed stylists do not have exclusive occupation of land and that instead they use facilities, which are not covered by the exemption, so must be standard rated.

The impact of this change will potentially affect both parties. The self-employed stylist will suffer the VAT charge if not VAT registered, so they will not be able to reclaim it and the salon owner will potentially have to register for VAT if their turnover (now taxable and no longer exempt) is above the VAT threshold.

Pumping iron in the gym

This next change will affect business owners of leisure and gym facilities and shops that sell health products. This tax will align the UK with the rest of the EU in which standard-rated VAT is levied on protein and sports drinks. Products that will be affected by this change will be carbohydrate workout drinks, protein drinks and drinks containing creatine,

These drinks will no longer be considered zero-rated because of their nutritional content (i.e. they can’t pretend to be basic food).

HMRC will implement this rule so there is consistency across the board and so there will be a 20% VAT increase on these products.