Explanatory Notes

Finance Act 2012

2012 CHAPTER 14

17 July 2012


Section 200: Group Supplies Using an Overseas Member


1.Section 200 puts on a statutory footing a long standing concession on how the reverse charge on an intra-group supply (which arises when a partly exempt VAT group buys in services through an overseas group member) should be valued. It applies where the representative member of the group satisfies the Commissioners as to the value of the bought in services. It sets out how the charge is to be calculated and allows HMRC to direct that the value of the bought in services is to be an open market value. It also provides a power for subsequent amendments to be made to the valuation provision.

Details of the Section

2.Subsection (2) inserts a provision into section 43(2C)(c) of the Value Added Tax Act 1994 (VATA). Section 43(2C)(c) provides that the value of intra-group supplies falling within section 43(2A) are to be treated as a reverse charge in accordance with section 8 of VATA. The inserted provision provides that the supplies may be subject to the valuation provisions in new paragraph 8A of Schedule 6.

3.Subsection (3) provides for a right of appeal for the taxpayer against an open market valuation direction.

4.Subsection (4) provides for any subsequent order varying the valuation provisions to be subject to the affirmative resolution procedure.

5.Subsection (6) provides that paragraph 1 of Schedule 6 does not apply to supplies valued in accordance with new paragraph 8A of that schedule.

6.Subsection (7) inserts new paragraph 8A into Schedule 6

7.New paragraph 8A applies where two conditions (set out in new paragraph 8A(1)) are met.  Firstly a supply giving rise to the reverse charge is made and secondly the representative member of the VAT group satisfies the Commissioners as to the value of bought in supplies.

8.New paragraphs 8A(3) to (5) make provisions as to how the intra-group supplies shall be valued. Where the value of the bought-in supply or supplies is at least open market value, the value of the intra-group supply is the value of the bought-in supply or supplies (or the element thereof that is a cost component of the intra-group supply in question). Where the value of any bought-in supply is less than its open market value, the Commissioners may direct that the intra-group supply be valued taking an open market value for that bought-in supply (or the element thereof that is a cost component of the intra-group supply in question).

9.New paragraph 8A(6) provides that any direction must be given by notice in writing and must be within 3 years from the date of the intra-group supply.

10.New paragraphs 8A(7) and (8) allow the Treasury by order to amend the valuation provision and make any consequential provisions necessary.

11.Sub-section (8) provides that the changes will have effect from Royal Assent. The current concession will continue to apply until that point.

Background Note

12.A reverse charge is a mechanism for taxing supplies of services bought by businesses from outside the UK but consumed within the UK.

13.Supplies made by one member of a VAT group to another are disregarded (section 43(1) of VATA). Therefore no VAT would be chargeable when supplies from outside the UK are brought into a UK VAT group by a member belonging overseas. Sections 43(2A) to 43(2E) of VATA are anti-avoidance provisions preventing reverse charges from being avoided by buying in services, ultimately for consumption within the UK, via a VAT group member belonging overseas.

14.This valuation provision is necessary (as was the concession it replaces) to restrict the impact of sections 43(2A) to 43(2E), in appropriate circumstances, to the bought–in services introduced into the UK via an intra-group charge. Without this provision the charge would apply to the use of the overseas group member’s own resources included in the intra-group charges as well as the bought in services.