The Value Added Tax (Amendment) (No.3) Regulations 1997

Explanatory Note

(This note is not part of the Regulations)

These Regulations, which come into force on 3rd July 1997, amend Parts VIII (Cash Accounting) and XV (Adjustments to the Deduction of Input Tax on Capital Items) of the Value Added Tax Regulations 1995 (S.I.1995/2518) (the “principal Regulations”). Regulations 3 to 9 amend Part VIII and regulations 10 to 13 amend Part XV of the principal Regulations.

Regulation 1 deals with commencement.

Regulation 3 amends regulation 58 of the principal Regulations to exclude from the scheme supplies where full payment of the amount shown on the invoice is not due for more than 6 months from the date of issue of the invoice, and to exclude supplies where invoices are issued in advance of those supplies taking place. The regulation also inserts in regulation 58 a new provision allowing the Commissioners of Customs and Excise to withdraw entitlement to begin to use the scheme if they consider it necessary for the protection of the revenue.

Regulation 4 amends regulation 59 of the principal Regulations to permit the scheme to be varied by publication of a notice which amends an existing notice.

Regulation 5 amends regulation 60 of the principal Regulations to require a person to leave the scheme at the end of any prescribed accounting period in which their annual taxable turnover exceeds the tolerance limit of £437,500, unless the Commissioners allow or direct otherwise.

Regulation 6 amends regulation 61 of the principal Regulations to require a person leaving the scheme, for whatever reason, to account for outstanding tax on the VAT return for the prescribed accounting period in which they cease to use the scheme.

Regulations 7 and 8 make amendments to the principal Regulations for greater clarity and consistency. Regulation 8 also corrects an incorrect reference in the principal Regulations.

Regulation 9 amends regulation 64 of the principal Regulations to remove disqualification from use of the scheme where, while using the scheme, a person has been assessed to a penalty under section 63, 67 or 69 of the Value Added Tax Act 1994 or to a surcharge under section 59 of that Act, or has claimed input tax as though he has not been operating the scheme.

Regulation 10 amends regulation 113 of the principal Regulations to include as capital items both civil engineering works and refurbishment and fitting out costs for existing properties where their value is not less than £250,000 and to provide for the taxable value of rent which is payable or paid more than 12 months in advance or is invoiced for a period in excess of 12 months to be included in the value of the taxable interest supplied to the owner when determining, for the purposes of regulation 113(b), whether its value is £250,000 or more. The regulation also makes consequential amendments to regulation 113 of the principal Regulations arising from abolition of the developer’s self-supply.

Regulation 11 amends regulation 114 of the principal Regulations to provide that where the owner of a capital item moves into or out of a VAT group, or transfers the capital item in the course of transferring his business or part of his business as a going concern (except where the new owner is registered with the registration number of, and in substitution for, the transferor), each subsequent interval applicable to the item under the scheme will be a whole year. It also provides that where the first and second intervals applicable to a capital item would not exceed 12 months and there has been no change in the extent to which the capital item is used to make taxable supplies in that time, the two intervals are combined to become the first interval. The regulation also makes consequential amendments to regulation 114 of the principal Regulations arising from the amendments made by regulation 10, in particular to provide for the adjustment period for the new capital items added by that regulation to be ten years.

Regulation 12 amends regulation 115 of the principal Regulations to restrict the total amount of input tax deducted in respect of a capital item which is disposed of during the period of adjustment applicable to it under the scheme. The owner is required to compare the total input tax deducted or deductible (including the amount initially deducted and all subsequent adjustments, including the adjustment which would apply on disposal) to the output tax chargeable on the disposal of the capital item. If the total input tax exceeds the output tax chargeable on the disposal the owner is required to pay to the Commissioners, or restrict the input tax deductible on the final adjustment to, an amount which ensures that the two totals are equal. The regulation also makes consequential amendments to regulation 115 of the principal Regulations arising from the amendments made by regulations 10 and 11.

Regulation 13 amends regulation 116 of the principal Regulations as a consequence of the amendment made by regulation 11 regarding the movement of owners of capital items into or out of VAT groups and the transfer of capital items in the course of the transfer of a business or part of a business as a going concern. It provides that the method of ascertaining the extent of taxable use of a capital item for subsequent intervals determined in accordance with that amendment must be agreed with the Commissioners.