§ Mr. Dan Jones
asked the Chancellor of the Exchequer whether he proposes to introduce any amendments to Schedule 7 to the Finance (No. 2) Bill on Report to delete items from the scope of the higher rate of VAT.
§ Mr. Robert Sheldon
Amendments deleting the supply of tube fittings, bushes and bearings, sewing machine needles and certain undressed animal skins from the scope of the higher rate of VAT were accepted in Standing Committee. These amendments took effect from 1st May 1975, when the higher rate came into force and were the subject of earlier announcements. There are, however, certain technical and legal difficulties which are likely to arise if further items are deleted from Schedule 7 to the Bill in the course of its passage through the House.
All supplies of goods and services covered by the schedule as originally introduced into the House are chargeable in law at the higher rate under the 350W authority of Budget Resolution No. 16, which remains in force until the Finance Bill is enacted. If the schedule as finally enacted differs from Budget Resolution No. 16, any tax paid by suppliers of goods and services under the Resolution, which would not have been payable under the schedule as amended, becomes reclaimable from the Crown by the taxpayer. As a result, suppliers—particularly retailers—who had charged tax to their customers at the 25 per cent. rate under the authority of Budget Resolution No. 16, might experience considerable difficulties in making subsequent adjustments crediting their customers with the amount of tax refunded; and there is doubt what a VAT Tribunal would decide if registered customers who received credit from their suppliers to allow for the reduction in the rate of tax sought to sustain a claim to input tax deduction at the higher rate.
I feel it is essential to avoid these complications and the general difficulties which they would be likely to create, so in proposing changes to Schedule 7 I intend to avoid laying further Government amendments on Report to delete items from the schedule. Undertakings were, however, given in Standing Committee to reconsider the coverage of the schedule. This examination is still not complete, but where I am able to satisfy myself, in the light of further examination, that a sufficient case has been made to justify exclusion of an item from the higher rate, I would propose to implement these exclusions by using the powers to be conferred on the Treasury by Clause 17(2) of the Bill to make an order amending the schedule with effect from Monday 11th August.
We are making a further examination of the operation of the Provisional Collection of Taxes Act to see how difficulties of the kind I have explained can best be prevented in future.