The Value Added Tax (Amendment) (No. 5) Regulations 2003

Explanatory Note

(This note is not part of the Regulations)

These Regulations, which come into force on 1st October 2003, amend the Value Added Tax Regulations 1995 (S.I. 1995/2518) (“the principal Regulations”).

Continuous supplies

Regulation 3 gives effect to Article 1.1 of Council Directive 2000/65 EC of 17 October 2000(1), which amends Article 10(2) of Council Directive 77/388 EEC (the Sixth Directive), in relation to the time of supply in cases of certain continuous supplies of goods or services.

The amendments introduced in regulation 3 impose a time of supply where no such earlier time has arisen under certain other provisions within the principal Regulations.

Regulation 3 inserts the new regulation 94B in the principal Regulations.

Paragraph 94B(1) applies the new regulation to supplies falling within regulations 85, 86(1) to (4) and 90 of the principal Regulations.

Paragraph 94B(2) limits the scope of the new time of supply to circumstances where the supplier and the recipient of the supply are “connected persons”, or are both members of a group undertaking (other than a VAT group registration) and the supply is liable to VAT at a positive rate.

Paragraph 94B(3) further limits the scope by disapplying the new time of supply in cases where the supplier can demonstrate that the recipient is able to recover all the VAT on the supply.

Paragraph 94B(4) defines what is meant by “connected persons”, “undertaking” and “group undertaking”.

Paragraph 94B(5) sets out the primary effect of the new regulation. This is to create a time of supply at the end of an initial twelve month period (or a shorter period where this has been notified by the supplier) and to each following twelve month period thereafter. But this only applies to the extent that the supplies have not already been treated as taking place during the course of that period.

Paragraph 94B(6) makes the period end time of supply subject to a further eventuality. The issue of a VAT invoice or receipt of a payment within six months of the period end creates a time of supply which overrides the period end date.

Paragraph 94B(7) gives the Commissioners the power to vary the six month period allowed in 94B(6) where this is requested by the taxable person for some or all of the supplies in question.

Paragraphs 94B(8) to (10) allow the Commissioners to approve changes to the period end dates originally established under regulation 94B(5). This might arise where a taxable person’s business circumstances change. In that event, the taxable person can apply to change the period end for some or all of those supplies affected by the change in circumstances.

Paragraph 94B(11) applies where the supply in question is one of leasing assets, and there is a chain of two or more leases of those assets that culminates in the lease in question. This means that the lease in question depends on the other, superior, leases being present. In such a case the “connected person” and group undertaking tests in paragraph (2) are also applied between the recipient and all the lessors in the chain.

Paragraph 94B(12) includes in the reference to the leasing of assets, any letting, hiring or rental.

Paragraph 94B(13) defines when and to what extent goods or services are treated as being provided for the purposes of the new regulation 94B.

Paragraph 94B(14) provides that the effects of the regulations specified in regulation 94B(1) are disapplied to the extent that the supplies in question fall within the scope of the new regulation 94B.

A transposition note setting out how regulation 3 implements Article 1.1 of Council Directive 2000/65 EC is available at www.hmce.gov.uk.

Regulation 4 brings the new regulation 94B within the ambit of regulation 95 (supplies spanning change of rate etc) of the principal Regulations.

Importations

Value added tax on the importation of goods from outside the member States is, in general, subject to the legislation applying to customs duties on importation(2).

Community legislation requires that security must be provided if payment of duty is to be deferred for a month following importation(3).

Regulation 6 prescribes adaptations to that Community legislation and to relevant national legislation(4).

These adaptations mean that no security need be furnished for payment of the VAT in these circumstances if there is no risk to the payment.

A full regulatory impact assessment of the effect that regulation 6 will have on the costs of business is available from HM Customs and Excise, Customs and International Trade, Liability Team, 1W New King’s Beam House, 22 Upper Ground, London SE1 9PJ or http://www.hmce.gov.uk.

Regulation 5 updates existing references in the principal Regulations to Community legislation(5).

(1)

OJ No L 269, 21.10.2000, p 44.

(2)

Value Added Tax Act 1994 (c. 23) section 16.

(3)

Article 225 of the Community Customs Code (Council Regulation (EEC) No 2913/92) (OJ L 302, 19.10.92, p 1).

(4)

The adaptations implement Article 23 of the Sixth Council Directive of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes—common system of value added tax; uniform basis of assessment (OJ L 145, 13.6.77, p 1). A transposition note is available from HM Customs and Excise, Customs and International Trade, Liability Team, 1W New King’s Beam House, 22 Upper Ground, London SE1 9PJ or http://www.hmce.gov.uk. The relevant national legislation is S.I. 1976/1223, amended by S.I. 1978/1725, whereby Customs and Excise may approve a person to apply for deferment of payment if Customs and Excise is satisfied with the security furnished and the arrangements for payment (see regulations 2(1), 4(1) and 4(2) of that instrument). Customs and Excise may vary approvals (see regulation 4(3)). Payment is deemed to have been made for certain purposes at the time deferment was granted (see regulation 8).

(5)

Reflecting changes in numbering made to Commission Regulation (EEC) No 2454/93 (implementation of Community Customs Code) (OJ L 253, 11.10 93, p 1) by Commission Regulation (EC) No 993/01 (OJ L 141, 28.5.01, p 1).