HM Revenue and Customs Brief 44/09
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Issued 27 July 2009
VAT – Changes to the operation of the option to tax on supplies of land and
buildings and changes to the operation of the 'connected persons' rules
This Revenue & Customs Brief announces a series of changes to Schedule 10 of
the VAT Act 1994 as follows:
- minor changes to the operation of the option to tax
- changes to the connected persons rules
These amendments come into effect on 1 August 2009 although some parts of the
connected person’s changes do not come into effect until 15 August 2009.
Schedule 10 to the VAT Act 1994 deals primarily with the option to tax on
supplies of land and buildings. Following a series of amendments necessary to
block aggressive tax avoidance schemes, this legislation became increasingly
more complex and was identified by business as a key area for simplification.
Schedule 10 was replaced on 1 June 2008 following extensive consultation.
This new legislation was re-written in the 'Tax Law re-write' style, which
greatly improved the layout of the legislation as well as simplifying the
language. The legislation also introduced guidance on how to revoke an option to
tax, a facility which is to become available to taxpayers from 1 August 2009.
Minor changes arising from the operation of the option to tax
Following the introduction of the new Schedule 10, some unforeseen
consequences were identified during HM Revenue & Customs' (HMRC) on-going
discussions with business. As a result business and HMRC have identified a
number of minor amendments that are necessary to ensure that business is able to
benefit as intended from the changes made as well as protect the revenue from
future avoidance risks.
The changes that have been made include:
- The period for notification of the exclusion from the effects of an option
to tax has been increased to 30 days or such longer period as HMRC may allow.
- Denying automatic revocation under the six year rule, or on making a Real
Estate Election ('REE'), where further supplies (for example, overages) will
or may arise after revocation.
- Ensuring that all members of a VAT group are considered when options are
- Changes to the rules on REEs so that if there is more than one tax point
for a supply, the option is made on the date of the first supply.
- Amending the capital item condition of the 20 year automatic revocation
rules so that a taxpayer who meets all the other conditions can still have
automatic revocation if the sum of all the remaining Capital Goods Scheme
adjustments is £10,000 or less.
- Amending the rules on granting permission to revoke an option to tax after
20 years so as to enable the time of revocation to be tied to an event. This
would allow revocation to be linked to say, the sale of a property.
Further details are contained in
VAT Information Sheet 12/09
Changes to the connected persons rules
Several banks have become 'connected' for the purposes of the s839 of the
Income Taxes Act 1988 as a result of the Government taking shares in them. By
being connected, certain anti-avoidance rules are triggered which has meant that
unintended tax implications may arise on certain transactions. This amendment
treats taxpayers as unconnected where their only connection (within the meaning
of s839 of the Income Taxes Act 1988) is because they are controlled by the
Crown, a minister of the Crown, a Government Department or a Northern Ireland
Department. These changes affect:
- the Option to Tax (para 34 to Schedule 10 of the VAT Act)
- supplies of land for indeterminable consideration (Reg 84 of the VAT
- supplies of construction services (Reg 93 of the VAT Regulations 1995)
- continuous supplies of services ((Reg 94 of the VAT Regulations 1995)
How will the changes be effected?
All the changes to Schedule 10 are being made by Treasury Order and will be
effective from 1 August. The three changes to the VAT Regulations become
effective from 15 August.
Public Notice 742A – Opting to tax land and buildings will be issued in due
Further information can be obtained on HMRC’s website or through the National
Advice Service (NAS) on Tel 0845 010 9000.
Information Sheet 12/09 providing guidance and further detail is available
and will supersede or compliment existing guidance as appropriate. A revised
Notice 742A Opting to tax land and buildings and new guidance will be
available as soon as possible.
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Article Published/Sorted/Amended on Scopulus 2009-07-30 10:55:11 in Tax Articles