VAT (Hansard, 21 October 1991)

§ Mr. Norman Lamont

The Council of Ministers has not yet reached final agreement on all the details of the VAT system which will operate after 1992. However, all member states are agreed that, since tax controls at frontiers will be abolished in the single market, it will no longer be possible to collect VAT at importation on goods traded between EC countries.

The Government have always made it clear that, in these circumstances, we would reintroduce the system known as "postponed accounting" for VAT on goods and related services acquired from the rest of the EC. This will take effect on 1 January 1993.

This means that, from January 1993, businesses will account for VAT on such goods and services when they make their normal VAT returns. As a result, some 9(1,000 United Kingdom businesses will pay VAT on these goods and services later than at present, and will therefore gain a significant cash-flow benefit.

Arrangements for paying VAT on imports from non-EC countries will not he affected.

There will be no change whatever in the amount of VAT which is paid. However, the change in the timing of payments will cause a one-off cashflow loss to the Exchequer in 1992–93.

In order to prevent any increase in the public sector borrowing requirement, I have decided thast the largest VAT traders should account for VAT monthly, rather than quarterly as at present. This will only apply to traders whose net VAT payments, including VAT on all imports, exceeded £2 million over the period covered by their last four quarterly returns up to and including 31 March 1991.

This change will not take effect until autumn 1992. It will affect around 1,600 businesses, out of 1.4 million who pay VAT quarterly. Those businesses which are affected will pay over VAT earlier than at present, but none will pay more VAT.

I am making this announcement now in order to give businesses a full year's notice.

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The change to monthly accounting will bring United Kingdom practice more into line with practice in the rest of the EC. Nine other member states already require their largest traders to account for VAT on a monthly basis. It will also mean that the compliance burden of the VAT system on businesses is more fairly balanced between larger and smaller traders: under the present arrangements, the largest traders derive much the greatest benefit from the interval between payment of VAT by their customers and payment of VAT to Customs and Excise.

I will be consulting business representives on the details of this change.