A Summary of the Government's Tax U-Turns


In recent days, the Government has announced U-turns on tax plans outlined in George Osborne's Budget in March. Below, Mitchell Charlesworth's tax experts outline these changes to the Pasty Tax, The Caravan Tax and Tax Relief Limits on Charitable Giving.

'Pasty Tax' U-Turn

Pasty

The government is to reverse it plans, as announced in the budget, to impose VAT on food such as pasties and sausage rolls, otherwise known as the 'pasty tax'.

The definition of what is "hot" food has been altered in order to allow a reversal of the plans. Food sold on shelves, such as pasties, that are in effect 'cooling down', rather than being kept hot in a special cabinet, will not be liable for VAT.

Under current legislation, VAT is payable on takeaway food sold to be eaten hot.

However, if the pasties or sausage rolls happen to have just come out of the oven and are subsequently hot when sold, despite returning to the surrounding 'ambient temperatures' on shelves, they will be treated for tax purposes like cold takeaway food and hence, will be zero-rated.

'Caravan Tax' U-Turn

The Government has also announced that it will change its VAT plans for static caravans.

Following widespread opposition, static caravans will now only be liable to pay VAT at 5%, rather than the 20% rate to which mobile caravans are currently subject.
Caravan


Tax Relief Limit On Charitable Giving

Charity Donation

The Chancellor has also reversed his plans to limit tax relief on charitable giving following criticism that this would have significantly reduced donations to charities.

George Osborne had announced in his Budget that there would be a limit of £50,000 or 25% of income (whichever was higher) on the amount a person could donate to charity, instead of paying this amount to the taxman.

Under current rules, higher rate taxpayers can donate unlimited amounts of money to charity and offset this against their tax bill which can effectively bring down the amount of tax they pay, sometimes to zero.  Although these individuals are not benefiting financially, it was argued that these wealthier individuals could choose where their money is spent, unlike most taxpayers whose cash goes to the government to fund things such as hospitals and schools.

This change in tax legislation had been announced by the Chancellor in order to close a specific tax loophole. Originally, Downing Street had suggested that wealthy donors were giving money to charities that "don't, in all cases, do a lot of charity work" or operated abroad.

It should be noted that the Government will still proceed with a cap on income tax reliefs for wealthy people, but will not be capping relief for giving money to charity.

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