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Statutory Instrument 2002 No. 1142The Value Added Tax (Amendment) (No. 2) Regulations 2002(The document as of February, 2008) STATUTORY INSTRUMENTS2002 No. 1142VALUE ADDED TAXThe Value Added Tax (Amendment) (No. 2) Regulations 2002
The Commissioners of Customs and Excise, in exercise of the powers conferred on them by sections 25(1) and 26B of, and paragraph 2(1) and (11) of Schedule 11 to, the Value Added Tax Act 1994[1], and of all other powers enabling them in that behalf, hereby make the following regulations: Citation and commencement 1. - (1) These Regulations may be cited as the Value Added Tax (Amendment) (No. 2) Regulations 2002. (2) These Regulations shall come into force on 25th April 2002 and Part I shall take effect in accordance with paragraph (3) below. (3) Part I of these Regulations shall take effect -
(b) in the case of any other taxable person, from 25th April 2002. 2.Amend Part VII of the Value Added Tax Regulations 1995 (annual accounting) in accordance with this Part. 3.In regulation 49 -
(ii) for the purposes of regulation 51, immediately preceding the first day of his transitional accounting period, a sum equal to 25 per cent. of the total amount of VAT that he was liable to pay to the Commissioners in respect of those 12 months; or (b) in the definition of "the agreed quarterly sum", for "20 per cent" substitute "25 per cent."; and
(ii) for the purposes of regulation 51, immediately preceding the first day of his transitional accounting period, a sum equal to 10 per cent. of the total amount of VAT that he was liable to pay to the Commissioners in respect of those 12 months; or 4.In regulation 50 -
(b) omit paragraph (3). 5.In regulation 51, for paragraph (a)(i) substitute -
6.Immediately after paragraph (1) of regulation 52 insert -
7.Immediately after Part VII (annual accounting) of the Value Added Tax Regulations 1995[3] insert a Part to be known as "Part VIIA - Flat-Rate Scheme For Small Businesses" as follows - Interpretation of Part VIIA 55A. - (1) In this Part -
(b) for consumption by him within one year, or (c) to generate income by being leased, let or hired;
(2) For the purposes of this Part, a person is associated with another person at any time if that other person makes supplies in the course or furtherance of a business carried on by him, and -
(b) the persons are closely bound to one another by financial, economic and organisational links. Flat-rate scheme for small businesses
(b) such earlier or later date as may be agreed between him and the Commissioners. (2) The date with effect from which a person is so authorised shall be known as his start date.
(b) acquisition of any goods from another member State by, or (c) importation of any goods from a place outside the member States by, a flat-rate trader is a relevant purchase of his.
(b) the operative date for VAT accounting purposes is, by virtue of regulation 57 (cash accounting scheme), a date when he is a flat-rate trader, that supply is a relevant supply or a relevant purchase of his, as the case may be, if otherwise it would not be by virtue of paragraph (2) above.
(b) claims any such credit, and (c) makes a supply of those capital expenditure goods, the supply made by him is not a relevant supply of his, if otherwise it would be.
(b) the taxable person makes a claim in accordance with regulation 111 (exceptional claims for VAT relief). (2) Where this regulation applies, section 26B(5) of the Act shall not apply to prevent the taxable person from being entitled to credit for input tax in relation to the matters for which he makes the claim described in paragraph (1)(b) above.
(b) the Commissioners authorise the claim described in paragraph (1)(b) above, the whole of the input tax on the goods or services concerned shall be regarded as used or to be used by the taxable person exclusively in making taxable supplies.
(b) "the cash turnover method", which shall be a method based on the actual consideration received in a period; (c) "the retailer's turnover method", which shall be a method based on the daily gross takings of a retailer. (2) When exercising their power to prescribe these methods, the Commissioners shall prescribe what rules are to apply when a flat-rate trader ceases to use one of the methods and begins to use a different method.
(b) if his start date is not the first day of the period, in the remainder of the period. (3) For any subsequent prescribed accounting period current at an anniversary of his start date, the appropriate percentage shall be that specified in the Table for the category of business that he is expected, on the first day of that prescribed accounting period, on reasonable grounds, to carry on in the period.
(b) the most recent anniversary of his start date, whichever is the later.
(b) ceases to carry on an existing business activity. (2) The first day on which he -
(b) no longer carries on the existing business activity, shall be known as "the change date".
(b) for the purpose of regulation 55H(3) above, the first day of a prescribed accounting period current at an anniversary of his start date; (c) for the purpose of regulation 55J, the change date. (3) He shall be regarded as being expected, on reasonable grounds, to carry on that category of business which is expected, on reasonable grounds, to be his main business activity in that period.
Admission to scheme 55L. - (1) A taxable person shall be eligible to be authorised to account for VAT in accordance with the scheme at any time if -
(ii) the total value of his income in the period of one year then beginning will not exceed Ј125,000, (b) he -
(ii) is not required to carry out adjustments in relation to a capital item under Part XV, or (iii) does not intend to opt to account for the VAT chargeable on a supply made by him by reference to the profit margin on the supply, in accordance with the provisions of any Order made under section 50A of the Act[4], (c) he has not, in the period of one year preceding that time -
(ii) made any payment to compound proceedings in respect of VAT under section 152 of the Customs and Excise Management Act 1979[5], (iii) been assessed to a penalty under section 60 of the Act, or (iv) ceased to operate the scheme, and (d) he is not, and has not been within the past 24 months -
(ii) registered for VAT in the name of a division under section 46(1) of the Act, or (iii) associated with another person. (2) In determining the value of a person's taxable supplies or income for the purposes of paragraph (1)(a) -
(b) any supply of services treated as made by the recipient by virtue of section 8 of the Act (reverse charge on supplies from abroad), shall be disregarded.
(b) registered for VAT in the name of a division under section 46(1) of the Act, or (c) associated with another person, in the period of 24 months before the date of his application, he shall not be eligible to be authorised, unless the Commissioners are satisfied that such authorisation poses no risk to the revenue.
(b) there are reasonable grounds to believe that the total value of his income in the period of 30 days then beginning will exceed Ј150,000, (c) he becomes a tour operator, (d) he intends to acquire, construct or otherwise obtain a capital item within the meaning of regulation 112(2), (e) he opts to account for the VAT chargeable on a supply made by him by reference to the profit margin on the supply, in accordance with the provisions of any Order made under section 50A of the Act, (f) he becomes -
(ii) registered for VAT in the name of a division under section 46(1) of the Act, or (iii) associated with another person, (g) he opts to withdraw from the scheme, or (2) A flat-rate trader does not cease to be eligible to be authorised by virtue of paragraph (1)(a) above if the Commissioners are satisfied that the total value of his income in the period of one year then beginning will not exceed Ј125,000.
(b) the change date, and (c) the appropriate percentages to be applied in each respective part of the prescribed accounting period current at the change date, within 30 days of the change date.
(b) a false statement was made by, or on behalf of, him in relation to his application for authorisation. Date of withdrawal from the scheme
(ii) in all other cases, the end of the prescribed accounting period in which the relevant anniversary occurred, (b) where regulation 55M(1)(b) applies, the beginning of the period of 30 days in question, (2) The date with effect from which a person ceases to be so authorised shall be known as his end date.
(b) for any prescribed accounting period for which he was a flat-rate trader, he was entitled to, and claimed, credit for input tax in respect of any capital expenditure goods, and (c) he did not, whilst he was a flat-rate trader, make a supply of those goods. (2) Where this regulation applies, those goods shall be treated for the purposes of the Act as being, on the day after his end date, both supplied to him for the purpose of his business and supplied by him in the course or furtherance of his business.
(b) at his end date, he has stock on hand in respect of which he is not entitled to credit for input tax, and (c) the value of the stock on hand referred to in sub-paragraph (b) above exceeds the value of his stock on hand in respect of which he was entitled to credit for input tax, at his start date. (2) Where this regulation applies, the taxable person, for the prescribed accounting period following that in which his end date falls, is entitled to credit for input tax in respect of his stock on hand in such amount as may be determined in accordance with a notice published by the Commissioners.
(b) he has used the cash turnover method to determine the value of his relevant turnover for the prescribed accounting period in which the relevant supply was made, (c) he has not accounted for and paid VAT on the supply, (d) the whole or any part of the consideration for the supply has been written off in his accounts as a bad debt, and (e) a period of 6 months (beginning with the date of the supply) has elapsed. (2) Where this regulation applies -
(b) the amount of refund of VAT to which the person is entitled under that section shall be the VAT chargeable on the relevant supply described in paragraph (1) above less the flat-rate amount. (3) In paragraph (2)(b) above, the flat-rate amount is -
". 8.In Part VIII of the Value Added Tax Regulations 1995 (cash accounting), immediately after regulation 57 insert -
(2) In this regulation, "relevant supplies" and "relevant purchases" have the same meanings as in Part VIIA (flat-rate scheme for small businesses).". 9.In Part IX of the Value Added Tax Regulations 1995 (supplies by retailers) -
(This note is not part of the Regulations) These Regulations, which come into force on 25th April 2002, further amend the Value Added Tax Regulations 1995 (S.I. 1995/2518) (the "principal Regulations"). However, Part I of the Regulations, which amends the annual accounting scheme, has effect in the case of persons who are already operating the annual accounting scheme only from the beginning of their relevant accounting periods starting after 24th April. Regulation 3 amends the definitions of "the agreed quarterly sum", "the quarterly sum", and "the monthly sum" prescribed in regulation 49 of the principal Regulations. The effect of the changes is that the amount of the quarterly sum and the agreed quarterly sum is increased, and new provision is made to define the latter two terms in respect of persons who have not been registered for VAT for 12 months (such persons were formerly not permitted to use annual accounting). Regulations 4 and 5 amend regulations 50 and 51 respectively, of the principal Regulations. The effect is that persons using annual accounting will make payments of the monthly sum or the agreed monthly sum, unless the Commissioners agree that payment may be made of the quarterly sum or the agreed quarterly sum instead. The rules that formerly allowed some persons using annual accounting to make no interim payments are removed. Regulation 6 amends the rule in regulation 52 of the principal Regulations that a person must have been registered for VAT for 12 months before he is eligible to apply to use annual accounting. The effect of the amendment is that the rule does not apply where a person has reasonable grounds for believing that the value of taxable supplies made or to be made by him in the period of 12 months following his application will not exceed Ј100,000. Part II of these Regulations inserts a new Part VIIA, comprising new regulations 55A to 55V, into the principal Regulations and makes consequential amendments to the principal Regulations. This new Part VIIA of the principal Regulations establishes the flat-rate scheme for small businesses ("FRS"). The new regulation 55A of the principal Regulations defines terms used within the new Part VIIA. The new regulation 55B provides that the Commissioners may authorise a taxable person to commence using the FRS, or may refuse to do so for the protection of the revenue. It also prescribes the date of entry, including provision that the Commissioners and a taxable person may agree the date of his entry to the FRS, which date may be earlier or later than the taxable person's application. The new regulation 55C defines what are to be considered "relevant purchases" and "relevant supplies" for the purposes of the FRS, including making provision regarding supplies that are made at a time when a person is using the cash accounting scheme established by Part VIII of the principal Regulations. The new regulation 55D sets out the basic rule of accounting for the FRS which is that, subject to some exceptions, the VAT due from a person operating the FRS for any prescribed accounting period is the appropriate percentage of his relevant turnover for that period. The new regulation 55E allows a person using the FRS to recover input tax incurred on the purchase of a capital item that exceeds a value of Ј2,000 (including VAT), that he would otherwise not be entitled to deduct by virtue of section 26B(5) of the Value Added Tax Act 1994 c. 23 ("the Act"). The new regulation 55E also permits the whole of this input tax to be treated as if used exclusively in making taxable supplies. It also provides that section 26B(5) of the Act shall not deny the right to recover VAT on any supply, acquisition or importation which is not a relevant purchase. However, it does not create an entitlement to credit for input tax where this is otherwise blocked under section 25(7) of the Act. The new regulation 55F allows a person whose first prescribed accounting period is also the first for which he operates the FRS to recover the whole of the input tax validly claimed under regulation 111 of the principal Regulations in respect of VAT on goods or services to him before registration. The new regulation 55G permits the Commissioners to prescribe in a notice three methods (one of which a person operating the FRS must use) for determining when supplies take place for the purposes of ascertaining a person's relevant turnover. It also allows the Commissioners to set rules in a notice that are to apply when a person changes from one method to another. The new regulation 55H sets out the basic rules under which a person operating the FRS must determine, based on the category of business that he is going to carry on, which appropriate percentage from those listed in the Table he must apply for a particular period. The determination is made at the beginning of the period in question. The new regulation 55J provides for an exception to the general rule set out in regulation 55H where a person operating the FRS either begins or ceases to carry on a business activity. It provides that he must determine the appropriate percentage to be applied from the date of the change. The new regulation 55K contains the Table setting out what appropriate percentage is to apply to a person operating the FRS, depending on what category of business he carries on. It also sets out rules for determining what category of business a person is to be regarded as carrying on where he carries on business in more than one category. The new regulation 55L sets out the turnover limits for eligibility to join the FRS and which supplies are to be counted when determining the turnover for this purpose. It also sets out other conditions that must be met in order for a person to be eligible to join the FRS. The new regulation 55M sets out the circumstances in which persons operating the FRS cease to be eligible to continue to do so. The new regulation 55N provides that various matters regarding the appropriate percentage to be applied and matters affecting eligibility to continue to operate the FRS must be notified to the Commissioners in writing. The new regulation 55P permits the Commissioners to terminate a person's authorisation to operate the FRS in order to protect the revenue or where a false declaration is made at the time of application. The new regulation 55Q prescribes the dates from which a person ceases to be authorised to operate the scheme where any of the matters listed in regulation 55M occur. The new regulation 55R provides that a self-supply charge shall arise where a person ceases to operate the FRS, but remains registered for the purposes of VAT and has claimed input tax on the purchase of capital expenditure that he has not supplied whilst he was using the FRS. The new regulation 55S provides for an input tax adjustment to be made in respect of stock on hand when persons cease operating the FRS but remain registered for the purposes of VAT. The regulation provides that the amount of the adjustment is to be determined in accordance with a notice published by the Commissioners. The new regulation 55T allows the Commissioners to vary the terms of any method for determining relevant turnover or the amount of the stock adjustment, by publishing a new notice or by amending an existing one. The new regulation 55U provides that there is no requirement to raise a reverse charge to account for VAT on supplies from abroad where this is a relevant supply or purchase. The new regulation 55V provides that, provided the conditions of the regulation are met, a person using the cash turnover method of determining his relevant turnover may recover VAT on bad debts, and sets out the method of calculation. Regulation 8 inserts a new regulation 57A into the principal Regulations, which provides that a person may not use the cash accounting scheme for any relevant supplies or purchases within the scope of the FRS. Regulation 9 amends Part IX of the principal Regulations such that a person using a retail scheme must cease to do so if he starts to operate the FRS. A Regulatory Impact Assessment on the Introduction of a Flat-Rate Scheme and Changes to the Annual Accounting Scheme was published on 25th April 2002 and is available at www.hmce.gov.uk. Notes: [1] 1994 c. 23. Section 96(1) defines "the Commissioners" as meaning the Commissioners of Customs and Excise and "regulations" as meaning regulations made by the Commissioners under the Act. Section 26B was added by a resolution passed by the House of Commons on 23rd April 2002 under the Provisional Collection of Taxes Act 1968 (c. 2), section 1. This resolution has statutory effect but will cease to have effect on 23rd August 2002 unless re-enacted in the Finance Act 2002. Relevant amendments were made to section 1 of the Provisional Collection of Taxes Act 1968 by section 60 of the Finance Act 1968 (c. 44), section 50 of, and paragraph 1 of Schedule 9 to, the Value Added Tax Act 1983 (c. 55), section 205 of the Finance Act 1993 (c. 34) and section 50 of the Finance (No. 2) Act 1997.back [2] S.I. 1995/2518; relevant amending instruments are S.I. 1996/542, S.I. 2001/677.back [3] S.I. 1995/2518; relevant amending instruments are S.I. 1997/1614 and S.I. 2001/677, which amended Part VIII (cash accounting), S.I. 1997/2437, which amended Part IX (supplies by retailers) and S.I. 1996/2960, S.I. 1997/1086 and S.I. 1999/3029, which amended Part XIX (bad debt relief).back [4] Section 50A was inserted by the Finance Act 1995 (c. 4), section 24.back [5] 1979 c. 2.back [6] Section 36 was amended by the Finance Act 1997 (c. 16), section 39 and Schedule 18, Part IV, the Finance Act 1998 (c. 36) section 23 and Schedule 27, Part II and the Finance Act 1999 (c. 16) section 15.back ISBN 0 11 039982 X -- Back --
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