Explanatory note

These Regulations, which come into force on 9th June 1999, amend the rules governing the time when a VAT charge arises on supplies of construction services. The amendments alleviate the impact of the current provisions on situations which do not involve tax avoidance. The amendments also continue to prevent avoidance of VAT involving the deferral of a VAT charge under contrived contracts where payment for construction services is not due for many years.

Regulation 2 substitutes a revised regulation for construction services covered by stage payments. Under the old rules a VAT charge arose when a supplier received a payment, issued a VAT invoice, or 18 months after the services were performed. Under the revised rules a charge to VAT will continue to arise when a payment is received or a VAT invoice is issued. In addition, in defined circumstances, a charge to tax will arise on the day when the work is completed. (Under a transitional rule for services completed before 8th June 1999, this charge arises 18 months after the construction work was completed.)

The defined circumstances are that the supplier or someone directly or indirectly financing the supplier’s costs expects the land to which the construction services relate to become exempt land. Financing includes giving loans, subscribing for share capital, giving guarantees and any other way of transferring assets or value to provide funds. Land can only be exempt land if the person occupying it (which includes occupying buildings on it) is the construction supplier himself, or the person financing him, or someone connected with either and the occupier is restricted in his ability to recover VAT on costs related to the land.