Chancellor George Osborne to close VAT loopholes

Tax breaks on items from luncheon vouchers to static caravans will be scrapped as a result of the Budget.

Chancellor George Osborne announced plans to close loopholes and remove anomalies from the way VAT is applied, meaning more items will be hit by the 20% tax.

The price of hot food from supermarkets such as rotisserie chickens could rise as a result of the changes.

Mr Osborne said: "We will also address some of the loopholes and anomalies in our VAT system.

"For example, at present, soft drinks and sports drinks are charged VAT; sports nutrition drinks are not.

"Hot takeaway food on high streets has been charged VAT for more than 20 years; but some new hot takeaway products in supermarkets are not.

"And some companies are using the VAT rules that exempt the rental of land to avoid tax that their competitors are paying.

"We're publishing our plans today to remove loopholes and anomalies, but we keep the broad exemptions on food, children's clothes, printed books and newspapers."

The Budget red book said: "Over time, significant anomalies have developed in the VAT system. These cause very similar products to be taxed very differently.

"Budget 2012 announces that the Government will take steps to correct certain anomalies.

"From 1 October 2012, VAT will be extended to reduce anomalies, including the use of self storage (to align it with other forms of storage) and alterations to listed buildings (to align with the existing VAT treatment of repairs).

"The Government will also close loopholes in the VAT system to prevent avoidance and ensure compliance.

"From 1 October 2012, VAT will be extended to close loopholes, including by applying it to hairdressers' chairs (to make clear that their rental is already subject to VAT), static holiday caravans (to bring in line with mobile caravans) and certain hot food (because most hot food is already subject to VAT)."

A wide range of historic reliefs on other duties will be scrapped as part of the Government's move to simplify the tax system.

The move follows a report by the Office of Tax Simplification in March last year which identified a number of tax breaks which could be scrapped.

From April 6 next year, the 15p daily relief on luncheon vouchers provided by workplaces, originally introduced in 1946 when food was still rationed, will disappear and the full value of the benefit will be taxable.

Angostura bitters, an essential ingredient for cocktails such as pink gin, will become subject to excise duty from April 1, 2013, as will black beer - a potent brew made by one producer in West Yorkshire.

Historically, black beer was viewed to have medicinal properties. But, as the Office of Tax Simplification notes "at approximately 8.5% abv it would not be considered to be a 'health product' today".

The Treasury forecasts that removing the VAT anomalies and closing loopholes will bring in £125 million in 2012/13 rising to £350 million in 2016/17.

Labour MP Diana Johnson (Hull N) complained about the impact of imposing VAT on caravans.

She said: "This will have a real impact on the economy in Hull because we manufacture a great deal of the caravans in this country.

"I understand it could almost reduce demand by 30%, another hammer blow."

Labour Treasury spokesman Owen Smith said: "The decision to slap VAT on more regular purchases is another stealth tax on middle and lower income families.

"The OBR has confirmed that this will drive up inflation and hit consumption. It will increase the cost of a haircut, a bacon sandwich, a sausage roll, or a caravan holiday. These are the kinds of changes which will hit families in the middle.

"The Chancellor already raised VAT to 20% in 2011 and this is costing families with children an average of £450 a year - and this will only add to that figure. Labour has called for a temporary cut in VAT as part of our five point plan for jobs and growth, to ease the squeeze on families and get our stalled economy moving again."

Bakery chain Greggs said it would make "strong representations" about Mr Osborne's plan to close VAT loopholes.

A spokesman said: "We do not believe that our freshly baked savoury products should be subject to VAT and we will be making strong representations to the Government regarding the proposed changes."

PA