Explanatory note
(This note is not part of the Order)
Where the requirements of article 5(2) of the principal Order are fulfilled, a transfer of property comprising land (including a building) as a going concern will not be treated as a supply for VAT purposes.
Generally, supplies of land are exempt from VAT. By virtue of paragraph 2(1) of Schedule 10 to the Value Added Tax Act 1994 (paragraph 2(1) was amended by S.I. 1994/3013) (“the Act”) a person may elect to waive exemption for such supplies. This has the effect of making these supplies taxable. Until now, for a transfer of land to be treated in accordance with article 5(2) of the principal Order, a transferee was required to make an election to waive exemption in relation to it to have effect (and notify it to the Commissioners of Customs and Excise of his election), before the transaction occurred. In addition to this, a transferee must now notify a transferor that he will not be making supplies of the property transferred that will be exempt by virtue of paragraph 2 (3AA) of Schedule 10 to the Act notwithstanding his election to waive exemption (Paragraph 2(3AA) was inserted by section 37 of the Finance Act 1997 and amended by S.I. 1999/593 and 2004/778).
Article 1 provides for the commencement of this Order.
Article 3 makes a consequential amendment to article 5(2) of the principal Order arising from the insertion of paragraphs (2A) and (2B) by article 4 of this Order.
The new article 5(2A) of the principal Order contains the two conditions that must be met by a transferee before a transfer of the land can be treated as neither a supply of goods nor a supply of services. The conditions are that, before the transfer:
he has elected to waive exemption that has effect before the transfer and notified it to the Commissioners of Customs and Excise; and
he has notified the transferor that article 5(2B) does not apply to him.
The new article 5(2B) applies to a transferee if both of the following apply:
the land transferred to him would, in relation to him, fall to be a capital item-whether the transfer to him is treated as neither a supply of goods nor a supply of services, or otherwise; and
his supplies of that land will, or would fall, to be exempt supplies by virtue of paragraph 2(3AA) of Schedule 10 to the Act.
A full regulatory impact assessment has not been produced for this instrument as it has negligible impact on the costs of business, charities or voluntary bodies.