Value Added Tax

HC Deb 24 May 1984 vol 60 cc477-8W

Mr. Christopher Hawkins

asked the Chancellor of the Exchequer (1) if he has yet reached a decision about whether to exclude from value added tax on building extensions and alterations all works carried out under contracts entered into on or before 13 March;

(2) if he will delay introducing value added tax on building extensions and alterations till 31 December on buildings acquired on or before 13 March.

Mr. Hayhoe

During the debate in Committee of the Whole House on clause 10 of the Finance (No. 2) Bill, I undertook that Treasury Ministers would consider very carefully, but without commitment, what had been said in that debate about the application of VAT to building alterations for which contracts had been entered into before the Budget.

VAT applies at the rate in force at the time of a supply of goods or services, not at the time of a contract leading to such a supply, and existing VAT legislation clearly envisages that VAT changes will apply to existing contracts. To depart from this would introduce a new principle into the tax which would not, on other occasions, be generally advantageous. A relief for all contracts existing prior to the Budget would be very costly, as would the type of deferment suggested by my hon. Friend, and there is no satisfactory way of relieving selectively particular types of case which would be plainly seen to deserve exceptional treatment, while still refusing all others. But the two and a half months' notice given of the change together with the arrangement by which no VAT will fall on any advance payments made before 1 June for work done on or after that date has given the opportunity for a degree of relief to be obtained in many cases.

I am therefore afraid that I cannot agree to the relief for pre-Budget contracts or to the deferment which my hon. Friend has requested.

Mr. Heddle

asked the Chancellor of the Exchequer if he will indicate (a) the anticipated gross revenue following the implementation of his Budget proposals to impose value added tax on improvement and renovation building works and (b) the net revenue after mortgage interest tax relief has been taken into account.

Mr. Hayhoe

(a) As I told my hon. Friend on 13 March 1984, at column 140, about £450 million in a full year.

(b) The overall effect on tax revenues of changes in mortgage interest tax relief, taking account of the associated changes in the tax liabilities of the lenders on their incomes, is estimated to be broadly neutral.

Sir Anthony Kershaw

asked the Chancellor of the Exchequer what provision will be made within public expenditure plans and what resources will be available to meet the additional costs to Departments of the proposed levying of value added tax on the cost of building extensions and refurbishment of buildings they own.

Mr. Peter Rees

As stated in the Financial Statement and Budget Report, it is the Government's intention that the costs to Departments of the proposal to levy VAT on building alterations will be absorbed within existing programmes wherever possible.

Lord James Douglas-Hamilton

asked the Chancellor of the Exchequer whether he will ensure that existing arrangements under section 20 of the Value Added Tax Act 1983 are used to ensure that value added tax does not fall upon charges made to retirement pensioners for meals on wheels that are supplied either (a) by a local authority in the course of its statutory duties, (b) by voluntary organisations, such as the Women's Royal Voluntary Service, as the agent of the local authority or (c) brought in from an outside caterer or an institutional caterer such as that at Saughton prison.

Mr. Hayhoe

Where a local authority provides meals on wheels in the course of its statutory duties, or where a voluntary organisation, such as the Women's Royal Voluntary Service supplies such meals as the agent of the local authority, the supply is regarded as a non-business activity of the local authority and is outside the scope of VAT. Under section 20 of the Value Added Tax Act 1983 local authorities can claim refunds of the VAT they incur on goods and services supplied to them for non-business purposes. This includes the tax on meals supplied to them by outside caterers, or on institutional caterers such as that at Saughton prison, if they are used for the provision of meals on wheels.