Explanatory note

These Regulations, which come into force on 1st April 2004, further amend Parts 7 (annual accounting scheme), 7A (flat-rate scheme for small businesses) and 8 (cash accounting scheme) of the Value Added Tax Regulations 1995 (S.I. 1995/2518) (“principal Regulations”).

Regulation 4 increases the maximum turnover limit for entrants to the annual accounting scheme from £600,000 to £660,000. Regulation 5 increases the maximum turnover limit for those already operating the scheme from £750,000 to £825,000. Consequential amendment is made to regulation 54(2) of the principal Regulations.

Regulation 6 amends the Table of categories of business and appropriate percentages that applies for the purposes of the flat-rate scheme. The category of “postal and courier services” is deleted from the Table. Persons who would have fallen within this category will now fall within either the new category of “post offices” or the amended category of “transport or storage, including couriers, freight, removals and taxis”. Regulation 2 provides transitional arrangements for persons already authorised to use the flat-rate scheme and whose main business activity is that of courier. The amendments made by regulation 6 will apply to such a person from 1st July 2004, unless between 1^st April and 1^st July, his main business activity changes from that of courier. In such cases, the amendments made by regulation 6 will apply at the time of the change.

Regulation 7 increases the maximum turnover limit for entrants to the cash accounting scheme from £600,000 to £660,000. Regulation 8 increases the maximum turnover limit for those already operating the scheme from £750,000 to £825,000.

Regulation 9 substitutes a new regulation 61 of the principal Regulations, which provides for new arrangements for bringing outstanding VAT into account when persons leave the cash accounting scheme voluntarily or because they reach the maximum turnover limit.

Regulation 10 inserts a new regulation 64A into the principal Regulations. The new regulation modifies section 36(1)(a) of the Value Added Tax Act 1994 (c. 23) (bad debt relief scheme) so that a person who leaves the cash accounting scheme is entitled to claim bad debt relief at the end of the prescribed accounting period in which he leaves the cash accounting scheme (provided he satisfies the other conditions of the bad debt relief scheme).

A full regulatory impact assessment on the changes to the cash accounting, annual accounting and flat rate schemes was published on 17th March 2004 and is available on www.hmce.gov.uk.