§ Lord Holmpatrickasked Her Majesty's Government:
Whether Value Added Tax is chargeable in respect of compensation payments made to former handgun owners who have surrendered their weapons under any of the options available to them under the Firearms (Amendment) (No.2) Act 1997 Compensation Scheme. [HL894]
§ Lord McIntosh of HaringeyYes, only in respect of payments to handgun owners who are registered for Value Added Tax. Compulsory transfers of ownership of property against payments of compensation clearly fall within the scope of Value Added Tax.
If the surrendered guns are second-hand they may be eligible for inclusion in the special margin scheme for second-hand goods. This is a special scheme in which VAT is due only on the seller's profit margin rather than the full value of the goods. As the margin is the amount by which the selling price exceeds the purchase price, it follows that no VAT will be due on any goods sold at a loss.
Under the Value Added Tax rules, VAT registered gun owners should account for tax at the time their guns are surrendered. However, as a concession, Customs have agreed that owners will not have to account for tax until the time the compensation payments are received.