The Value Added Tax (Input Tax) (Amendment) (No. 3) Order 1995

Explanatory Note

(This note is not part of the Order)

This Order, which comes into force on 1st August 1995, further amends the Value Added Tax (Input Tax) Order 1992 (No. 3222) (the principal Order) to enable VAT charged on the supply, acquisition from another member State or importation of motor cars to be recovered as input tax in a broader range of circumstances and to introduce a new 50 per cent input tax recovery restriction on leasing charges where there is any private use of the motor car.

Article 3 inserts a new sub-paragraph in article 4 of the principal Order to exclude from recovery as input tax any VAT charged on a supply of a motor car supplied under the margin scheme applicable to motor cars which have been subject to an earlier input tax restriction.

Article 4 amends article 7(1) of the principal Order to make its operation subject to the additional paragraphs inserted into article 7 by article 6 of the Order and to expressly include the letting on hire of motor cars in the supplies to which article 7(1) applies.

Article 5 substitutes a revised paragraph (2) in article 7 of the principal Order which specifies those supplies, acquisitions from other member States or importations of motor cars to which paragraph 1 of article 7 does not apply.

Article 6 inserts new paragraphs into article 7 of the principal Order. Paragraph (2A) defines a “qualifying motor car” as one which has either never been subject to the full input tax restriction imposed by paragraph (1) of the article or one in respect of which the taxable person has made an election to have it treated as such. The election, which can only be exercised in the circumstances set out in the new paragraph (2B), enables a taxable person to cause a motor car which is first registered after 1st August 1995 but in respect of which a VAT invoice or payment has been made prior to that date still to be treated as qualifying motor car. The new paragraph (2C) excludes from being a qualifying motor car a motor car which is supplied, acquired from another member State or imported after 1st August but which has been the subject of a supply on a letting on hire prior to that date. The new paragraph (2E), together with paragraphs (2F) and (2G) define, for the purpose of the new paragraph (2)(a) of article 7 of the principal Order, the “relevant condition” which has to be satisfied before a supply, acquisition from another member State or importation of a qualifying motor car is excluded from the operation of paragraph (1). Finally, the new paragraph (2H) modifies the operation of paragraph (1) when it applies to a letting on hire of a motor car so that one half of the VAT charged on the leasing charges is excluded from credit as input tax.

Article 7 deletes article 7(3)(a) of the principal Order which ceases to be relevant following the amendments to article 7(2).

Article 8 amends article 7(4) of the principal Order to expressly exclude from the margin scheme applicable to the supply of motor cars which have been subject to the restriction on input tax recovery any motor car which a taxable person has elected to have treated as a qualifying motor car.

Finally, article 9 revokes the Value Added Tax (Input Tax) (Amendment) Order 1993 (No. 2954) which is spent.