The Value Added Tax (General) (Amendment) (No.4) Regulations 1989

Explanatory Note

(This note is not part of the Regulations)

These Regulations, which come into force on 1st April 1990, amend regulation 32(2) of the Value Added Tax (General) Regulations 1985 (“the principal Regulations”), and add a new Part VA to the principal Regulations. These provisions implement the requirements of Title XI, and in particular Article 20, of Council Directive No. 77/388/EEC (OJ No. L145, 17.5.77, pp 15–16).

Regulation 3 amends regulation 32(2) in Part V of the principal Regulations so that no account is to be taken of any amounts resulting from adjustments required under Part VA when applying the partial exemption de minimis limits.

Regulation 4 inserts Part VA into the principal Regulations. This new Part deals with adjustments to the initial deduction (if any) of input tax allowable under Part V on specified capital items, when the extent of the use of such items in making taxable supplies changes during the adjustment period applicable to them. The adjustment period consists of a series of either five or ten intervals, depending upon the description of the item. The main features are:

• the new regulation 37A adopts, with a modification, the same meaning for the purposes of this Part, any expression defined in Part V and used also in this Part. It also explains what is meant by a capital item and the owner of a capital item;

• the new regulation 37B specifies the capital items to which Part VA applies, and provides how the value of the capital items is to be determined;

• the new regulation 37C provides how the period of adjustment and the intervals are to be determined;

• the new regulation 37D provides the method for calculating an adjustment where–

  (a)

  the use made of a capital item in making taxable supplies in any subsequent interval changes from such use made of it in the first interval,

  (b)

  it is disposed of or otherwise becomes unavailable for use in the business during the period of adjustment, and provides for the method for claiming or accounting for any amounts where such adjustments are required;

• the new regulation 37E applies (subject to exceptions) the provisions of Part V of the principal Regulations for determining the extent to which a capital item is used in making taxable supplies.