Customs News

Bad debt relief

Comments are invited on the draft amendments to the VAT Regulations 1995 (SI 1995/2518), which will allow for the simplification of bad debt relief announced in this year's Budget. Comments should be provided by 31 May 2002. The changes to the VAT regulations will take effect from a date following Royal Assent of the Finance Bill.

The draft regulations, which can be obtained by e-mail from: sivakolunthu.sathiyanandarajah@hmce.gsi.gov.uk, are necessary to give those changes legal effect.

Consideration is being given to further amendments which would deal with the situation of de-registered traders (where the repayment of input tax arises after the date of de-registration) and whether amounts owed by the supplier to the debtor customer (for separate supplies) should be treated as a payment - this would be similar to the current Regulation 172(3).

Comments on either the draft regulations or the other areas being considered should be sent to: Paul Hannick, HM Customs and Excise, Supply of Goods Team, 22 Upper Ground, London SE1 9PY or paul.hannick@hmce.gsi.gov.uk.

Repossessed cars

Business Brief 19/2001 set out Customs' revised policy with respect to the treatment of proceeds from the sale of repossessed cars. The change in policy was introduced to alleviate the possibility of double taxation when new cars were repossessed and sold, where the sale after repossession was a taxable supply with VAT due on the full value. In such cases the proceeds from the sale of the repossessed car do not need to be deducted from the outstanding debt when calculating entitlement to bad debt relief. In case of any doubt, this change only applies where the initial sale was of a new car.

(Source: Customs Business Brief 13/2002 dated 9 May 2002.)

E-commerce directive

The VAT on E-Commerce Directive, which amends the place of supply of broadcasting and electronic services, was formally agreed on 7 May 2002 and will be implemented throughout the European Union with effect from 1 July 2003.

Under the current rules, radio and television broadcasting services and most electronic services, including digitised products, are deemed to be supplied in the country where the supplier belongs. European Union businesses are normally required to charge VAT on such services, including exports, while non-European Union businesses are not required to account for European Union VAT.

With effect from 1 July 2003, electronic and broadcasting services will normally be supplied in the country where the customer belongs, subject, in certain circumstances, to where the services are effectively used and enjoyed. However, European Union businesses will continue to charge VAT at the rate due in their Member State on services provided to private individuals or non-business organisations in other Member States.

A key effect of these changes is that non-European Union businesses supplying such services to private individuals or non-business organisations in the European Union will be required to register and account for VAT. European Union businesses importing such services will account for VAT using the reverse charge mechanism. European Union businesses will not have to charge VAT on services exported outside the European Union.

To relieve the burden of having to register in every Member State where supplies are made, the directive provides for a special interim scheme for non-European Union businesses. This will allow them to register electronically in the Member State of their choice and account for VAT, at the rate due in the customer's Member State, on an electronic return. This will be submitted with payment to the authority in the Member State of registration, which will then distribute the VAT to the Member States where the services are consumed. The scheme will not apply to businesses that provide radio and television broadcasting or other services. These arrangements will be replaced on 1 July 2006 with a fully electronic solution.

Secondary legislation will be introduced in the United Kingdom during the autumn to implement these changes.

(Source: Customs Business Brief 13/2002 dated 9 May 2002.)

Aggregates levy relief

The European Commission has approved the United Kingdom's proposal to phase in the aggregates levy over a five-year period for aggregates used to make processed products such as concrete, mortar and asphalt in Northern Ireland.

The tax relief, which will be backdated to the introduction of the levy on 1 April, means that no levy will be payable on such uses of aggregate in 2002-03. The level of relief will decline by 20 percentage points each year until the full rate of tax is due in 2007-08.

(Source: HM Customs news release 29/02 dated 24 April 2002.)

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