Explanatory note

Under the directive of the Council of the European Communities dated 17th May 1977, No. 77/388/EEC (OJ No. L145, 13.7.77, p. 1) as amended by the directive of that Council dated 14th February 1994, No. 94/5/EC (OJ No. L60, 3.3.94, p. 16) effective from 1st January 1995, member States are required to provide, for certain goods, a scheme of accounting on which VAT is calculated by reference to the profit margin (the margin scheme). The directives enable the United Kingdom to allow taxable persons to continue to calculate VAT by reference to the profit margin on certain goods and also to extend this facility to other goods, all of which become subject to conditions contained in the directives. One of these conditions is that goods supplied under the margin scheme are always taxable in the member State of origin and thus the normal VAT rules for intra-EC transactions do not apply.

This order amends the Value Added Tax (Input Tax) Order 1992 (No. 3222) (the 1992 Order).

Article 3 amends article 2 of the 1992 order, by deleting reference to certain itemised goods which now fall under a new definition of second-hand goods and by defining works of art, antiques and collectors' items in terms of the above directives.

Article 4 substitutes a new article 4 for that of the 1992 order, which omits references to certain itemised goods and replaces them with a single definition encompassing them all. It also substitutes “collectors' items” for “collectors' pieces” thereby widening the range of goods covered by this article in accordance with the above directives. It extends the circumstances in which the VAT on goods described in paragraph 4(2) are excluded from credit as input tax as a condition of a wider range of goods being eligible to be supplied under the margin scheme of accounting. It inserts a new paragraph 4(4) which ensures that the exclusion from credit as input tax does not apply where the goods are not, and are not to be, supplied under the margin scheme.