Explanatory note

These Regulations, which come into force in accordance with regulation 1, amend Parts 11 (time of supply and time of acquisition), 14 (input tax and partial exemption), 15 (adjustments to the deduction of input tax on capital items) and 15A (goods used for non-business purposes during their economic life) of the Value Added Tax Regulations 1995 (S.I. 1995/2518).

Regulation 3 amends regulation 86 (supplies of water, gas or any form of power, heat, refrigeration or ventilation) to add a reference to ‘other cooling’ to the description of supplies which fall within paragraph (1) of that regulation following an amendment to paragraph 3 of Schedule 4 to the Value Added Tax Act 1994.

Regulation 4 amends the title to regulation 87 (acquisitions of water, gas or any form of power, heat, refrigeration or ventilation). Regulation 87 applies to goods described in regulation 86 and its heading is amended in accordance with the amendments to regulation 86.

Regulation 5 amends regulation 99 (interpretation of Part XIV and longer periods) to insert a definition of “non-business VAT”.

Regulation 6 inserts a new regulation 102ZA to allow a taxable person who is required to make an apportionment under section 24(5) of the Value Added Tax Act 1994 to use a method provided for in regulation 102(1) and makes provision as to how that method will operate.

Regulation 7 amends regulation 107 (adjustment of attribution) to confirm that a taxable person operating a method provided for in regulation 102(1) to make the apportionment referred to in regulation 102ZA(1) is not eligible to treat all of his input tax as attributable to taxable supplies under regulation 106.

Regulation 8 amends regulation 110 (adjustment of attribution) to widen the scope of regulations 108 and 109 to cater for non-business VAT to ensure consistency with EU law.

Regulation 9 amends regulation 111 (exceptional claims for VAT relief) to insert a new paragraph (2)(e) to add a further category of VAT that may not be treated as input tax under paragraph (1) of that regulation as deduction becomes available in accordance with regulations 12 and 13.

Regulation 10 amends regulation 112 (interpretation of Part XV) to clarify the meaning of references to “an interest” and “owner”.

Regulation 11 substitutes a new regulation 113 (capital items to which this Part applies) to specify the capital items to which Part 15 of the Regulations applies. Ships and aircraft are brought into the capital goods scheme in accordance with EU law and some existing definitions are simplified.

Regulation 12 amends regulation 114 (period of adjustment) to substitute new paragraphs (3), (3A), (3B), (3C), (3D) and (4) for paragraphs (3) and (4) to align the period of adjustment of a capital item more closely with the owner’s interest in the item. It also provides that the period of adjustment is amended in circumstances where a business is not registered for VAT at the time it acquires a capital item to ensure a fair recovery of VAT.

Regulation 13 amends regulation 115 (method of adjustment) to simplify the wording and to remove an anti-avoidance provision that has become superfluous. It makes provision for the partial disposal of capital items in line with EU case law. The definitions are amended to widen the scope of Part 15 to cater for non-business VAT as required by EU law and to include VAT on costs incurred by businesses that are not registered for VAT to ensure that they are treated in the same way as businesses that are registered. It also confirms who is responsible for accounting for VAT adjustments in various circumstances and how a business that deregisters from VAT must account for any required adjustment.

Regulation 14 amends regulation 116 (ascertainment of taxable use of a capital item) to confirm that a taxable person must review the extent to which a capital item is used for business purposes when ascertaining its taxable use.

Regulation 15 amends regulation 116B (interpretation of this Part) to amend the definition of “the full cost of the goods” to make it clear that, in the case of relevant assets (as defined), the full cost excludes any costs on which VAT was incurred on or after 1 January 2011.

A full Impact Assessment has not been produced in relation to the changes made by regulations 3 and 4 as they have no impact on business, charities or voluntary bodies.

A full Impact Assessment of the effect that the changes made by regulations 5 to 15 will have on the costs of business and the voluntary sector is available at http://www.hmrc.gov.uk.