§ Mr. Eggarasked the Chancellor of the Exchequer what has been the outcome of consultations on the changes proposed by Her Majesty's Customs and Excise in the value added tax partial exemption regulations; and if he will make a statement.
§ Mr. HayhoeSome 80 organisations made written responses to a consultation document issued by Her Majesty's Customs and Excise in June, which proposed changes in the regulations governing partial exemption calculations for VAT. There have been further extensive discussions.
I am satisfied that it is necessary to amend the present regulations, which are intended essentially to simplify calculations of VAT liability, but are resulting in substantial losses of revenue. In the light of representations, some modifications will be made to the original proposals, to correct aspects of them which would have been unfair or unduly burdensome. The changes, as amended, which I am now authorising, are as follows:
Regulation 24: Of the two standard methods by which partly exempt traders can calculate the input tax they may recover, method 2 will be abolished. Traders who have previously used it will be able to agree special methods with Customs and Excise. Because of the major impact on their businesses, there will be a concession by which finance houses will be allowed to phase out the benefits they are at present obtaining from method 2 over a period of three years.
Regulation 25: In place of the present provision whereby supplies of securities or credit may be excluded from partial exemption calculations if the trader's business is not wholly or mainly in such supplies, there will be a provision by which supplies of securities or credit may be excluded if they are incidental to the business. Transactions which would not be treated as incidental will be specified in the regulations.
The same regulation also allows a trader to exclude disposals of premises which have been habitually occupied by him in the course of his business. Because of their unique circumstances, owners of tied public houses and tied garages will be allowed to exclude disposals of such premises from their calculations. I am giving further consideration to the treatment of the rentals of these premises.
Regulation 27: There will be two changes in the rules which allow exempt outputs and inputs related to them to be ignored as de minimis. The 5 per cent. outputs limit will be reduced to 1 per cent.; and a ceiling £200 a month will be put on the 5 per cent. de minimis inputs limit.
The Commissioners of Customs and Excise will be making amending Regulations which will be laid before the House in January. They will come into effect on 1 April 1984.
As a result of these changes, some businesses which have group registrations for VAT may wish to reconsider their groupings. Normally proposals to alter group registrations require 90 days notice to Customs and Excise. But this requirement will not apply to any proposal arising out of these changes, which is notified to Customs and Excise before 1 April 1984.