The Value Added Tax (Buildings and Land) Order 1991

Explanatory Note

(This note is not part of the Order)

This Order amends Group 1 (Land) of Schedule 6 (Exemptions) and Schedule 6A (Buildings and Land) to the Value Added Tax Act 1983, with effect from 1st January 1992.

Article 2 amends Group 1 of Schedule 6 as follows:

(a) Item 1 is extended so as to exempt the supply of certain personal rights (which arise only in Scotland) relating to land;

(b) A new paragraph (aa) is inserted to exclude from exemption, and thus cause to be chargeable at the standard rate, any grant pursuant to a developmental tenancy, lease or licence;

(c) The taxation of the grant of any right to take game or fish (ie “sporting rights” provided for by excluding paragraph (b) no longer applies when the sporting rights are sold freehold with the land over which they are exercisable;

(d) A new paragraph (l) is added so as to exclude from exemption, and thus cause to be chargeable at the standard rate, the grant of certain rights and options in relation to land where the grant of the legal or actual interest in or right over the land to which the rights or options relate would itself be standard-rated;

(e) A new Note (6A) relevant to the newly inserted paragraph (aa) is inserted. It determines the time when a tenancy or lease or a licence to occupy land is treated as becoming a developmental tenancy, lease or licence. This is when a developer is liable to pay a self-supply charge under paragraph 6(1) of Schedule 6A in respect of a building or civil engineering work whose construction, reconstruction, enlargement or extension commences on or after 1st January 1992.

Article 3 provides for amendments to paragraph 2 of Schedule 6A dealing with elections to waive exemption. Two new sub-paragraphs, (8) and (9), are added, both dealing with entitlement to input tax. For elections first having effect on or after 1st January 1992, the rule in paragraph 2(4) stipulating that input tax incurred before the election has effect is not allowable is abolished except in relation to input tax incurred before 1st August 1989. For elections first having effect before 1st January 1992, the elector may apply to the Commissioners of Customs and Excise (the Commissioners) to have the rule in paragraph 2(4) disapplied in respect of input tax incurred on or after 1st August 1989. The Commissioners, however, can only authorise the disapplication when they are satisfied that there will result a fair and reasonable attribution of input tax incurred before the effective date of the election.

Article 4 makes a number of amendments to paragraph 3 of Schedule 6A which deals with the procedures for making elections to waive exemption. There is one amendment of substance, the addition of a new sub-paragraph (10), the other amendments being consequential. The new sub-paragraph (10) provides that a person not already bound by an election having effect on 1st January 1992 must obtain the prior written permission of the Commissioners if, between 1st August 1989 and the day he wishes the election to be effective, he has made or intends to make any exempt grant in relation to the land concerned. The Commissioners can only authorise the election when they are satisfied that there will result a fair and reasonable attribution of input tax to grants which would become taxable in the event of the election having effect.

Articles 5 and 6 respectively amend paragraphs 5 and 6 of Schedule 6A providing for the self-supply charge on developers of certain non-residential buildings and civil engineering works, and article 7 inserts a new paragraph 6A into Schedule 6A.

The effect of the amendments in article 5 is to extend the developer’s self-supply charge to three distinct categories of reconstruction, enlargement or extension of existing buildings and also to reconstructions, enlargements or extensions of any existing civil engineering work carried out wholly or partly on new land. In all cases, the change only affects work commencing on or after 1st January 1992 and, except for a reconstruction in which at least 80 per cent of the area of the floor structures of the existing building are removed, the self-supply charge does not apply in cases in which the developer has held an interest in at least 75 per cent of all the land concerned during the ten years ending on the first day when the self-supply charge would otherwise be chargeable. In addition, the self-supply charge does not apply where the reconstruction, enlargement or extension takes place within the curtilage of an existing building in respect of which the developer has already been liable to such a charge.

The effect of article 6 is to amend the value of the self-supply charge set out in paragraph 6 of Schedule 6A. The amendments can be divided into three categories. First, under the amendments to paragraph 6(2)(a), which apply to developments commencing on or after 1st January 1992, rents paid by the developer relating to a demolished building on the site, or to a reconstructed or enlarged building, are in either case removed from the basis of value insofar as they are attributable to the demolished building or the existing building as it existed before the reconstruction or enlargement. In addition, and in all cases, the value of any grants made taxable by being excluded from exemption under paragraph (aa) of item 1 of Group 1 of Schedule 6 are excluded from the land element of the self-supply charge, so as to prevent double taxation. Secondly the new sub-paragraphs, (2A) and (2B), provide a relief when the rate of tax chargeable on the self-supply is higher than that applicable to some or all of the construction supplies that have to be taken into account under sub-paragraph 6(2)(b). The relief takes the form of applying the lower rate of tax to that portion of the value of the self-supply charge referable to supplies of goods actually delivered, and to supplies of services actually performed, before the change of rate. Thirdly, there are new sub-paragraphs (5) and (6) which contain provisions applying the basis of value to the various categories of reconstruction, enlargement and extension brought within the scope of the self-supply charge from 1st January 1992 by the new sub-paragraph 5(8) to Schedule 6A.

Article 7 adds a new paragraph 6A to Schedule 6A. It requires a developer who is a tenant, lessee or licensee to notify his landlord, lessor or licensor in writing of the date on which the landlord, lessor or licensor must start to charge tax on grants falling under excluding paragraph (aa) from item 1 of Group 1 of Schedule 6 and, in relation to one category of reconstruction, enlargement or extension, of the appropriate fraction to enable the landlord, lessor or licensor to apportion the rent between the supply which is exempt and the supply which is taxable under paragraph (aa).

Article 8 amends paragraph 8 of Schedule 6A by specifying which Notes to Group 8 (Construction of Dwellings, etc) of Schedule 5 (Zero-rating) and to Group 1 of Schedule 6 apply, with appropriate modifications, to Schedule 6A.