The Value Added Tax (Amendment) Regulations 1997

Explanatory Note

(This note is not part of the Regulations)

These Regulations, which come into force on 1st May 1997, amend the Value Added Tax Regulations 1995 (“the principal Regulations”). The amendments consist of two discrete packages of measures: (i) they introduce a 3 year time limit for correction of errors and other adjustments, and (ii) they modify the operation of the provisions governing refunds of VAT relating to bad debts (“the bad debt relief scheme”). Regulations 4 to 8 and 10 belong in the first package and 3, 9 and 11 to 16 in the second. Certain of the first package of changes are subject to transitional provisions.

Regulation 3 amends regulation 6 of the principal Regulations so that, in certain cases where a business is transferred as a going concern, any entitlement to bad debt relief will be the transferee’s. Also, any liability to make repayment of input tax to the Commissioners (in cases to which the new Part XIXA applies) will be that of the transferee.

Regulation 4 amends regulation 29(1) of the principal Regulations so that where input tax has not been claimed in the prescribed accounting period in which the VAT became chargeable, the Commissioners cannot allow or direct a claim to be made more than 3 years after the date by which it should have been made.

Regulation 5 amends regulation 34 of the principal Regulations so that a taxable person will no longer be able to correct errors made on past VAT returns when more than 3 years have elapsed since the accounting period in which the error occurred.

Regulation 6 amends regulation 38 of the principal Regulations so that where there has been an increase or decrease in the consideration for a supply, a taxable person is not to adjust his VAT account more than 3 years after the period in which the original supply was made.

Regulation 7 amends regulation 111 of the principal Regulations, which covers exceptional claims for VAT relief in connection with tax incurred before and after VAT registration. VAT will not be deductible where goods were purchased more than 3 years before the effective date of registration and will not be allowed by the Commissioners on a claim which is more than 3 years late. The regulation also limits to 3 years (from the date of supply) the period in which a claim can be made for VAT deduction on supplies of services received after de-registration for VAT.

Regulation 8 amends regulation 115 of the principal Regulations so that an adjustment relating to input tax incurred on capital items (under what is known as the capital goods scheme) cannot be allowed by the Commissioners to be made in a return for a prescribed accounting period beginning later than 3 years after the end of the period in which the adjustment should have been made.

Regulation 9 omits regulations 156 to 164 of the principal Regulations. These regulations concern the “old scheme” for bad debt relief which has effectively been repealed by section 39(5) of the Finance Act 1997 (c. 16).

Regulation 10 inserts a new regulation 165A in the principal Regulations. Claims for bad debt relief must be made within 3 years 6 months of the time when the consideration for the supply was due or the date of supply, whichever was the later. Although this regulation affects bad debt relief, it also falls within the package of changes which introduces the 3 year time limit.

Regulation 11 amends regulation 166(1) of the principal Regulations so that a claim for bad debt relief cannot be made on a return for an accounting period prior to that in which the taxable person becomes entitled to relief.

Regulation 12 inserts a new regulation 166A in the principal Regulations. A person who has claimed bad debt relief is required to notify his claim, in writing within 7 days, to the purchaser of the supply, provided the purchaser is a taxable person.

Regulation 13 amends regulation 168(2) of the principal Regulations so that persons are required additionally to keep copies of any notices provided to purchasers under the new regulation 166A.

Regulation 14 amends regulation 172 to ensure that the wording is consistent with that used in the rest of Part XIX of the principal Regulations.

Regulation 15 inserts new regulations 172A and 172B in the principal Regulations. These make special provision regarding the amounts to be treated as written off as bad debts in cases where VAT is not accounted for by reference to the full consideration for the supply (“margin schemes”).

Regulation 16 inserts a new Part XIXA containing regulations 172C to 172E in the principal Regulations. Regulation 172D makes provision for certain entries to be made in their VAT accounts by purchasers. These are necessary where a bad debt relief claim has been made by the supplier and the purchaser’s input tax entitlement is consequently removed by operation of the new section 36(4A) of the Value Added Tax Act 1994 (which was inserted by section 39(2) of the Finance Act 1997). Regulation 172E operates where there is a repayment of the bad debt relief claim by the supplier and the purchaser is entitled to recovery of the amount paid by him under regulation 172D.