Finance (No.2) Bill

House of Commons

Session 2005 - 06
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Other Bills before Parliament

Finance (No.2) Bill

Finance (No.2) Bill
Part 2 — Value added tax
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(c)
unless approved by that House before the end of the period of 28 days
beginning with the date on which it is made, ceases to have effect at the
end of that period.
(7)
But, if an order so ceases to have effect, this does not affect—
(a)
anything previously done under the order, or
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(b)
the making of a new order.
(8)
In reckoning the period of 28 days no account is to be taken of any time—
(a)
during which Parliament is dissolved or prorogued, or
(b)
during which the House of Commons is adjourned for more than 4
days.
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Imported works of art etc
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Value of imported works of art etc: auctioneer’s commission
(1)
Section 21 of VATA 1994 (value of imported goods) is amended as follows.
(2)
In subsection (2) (value of imported goods to include taxes and expenses), after
“shall” insert “(subject to subsection (2A) below)”.
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(3)
After subsection (2) insert—
“(2A)
Where—
(a)
any goods falling within subsection (5) below are sold by
auction at a time when they are subject to the procedure
specified in subsection (2B) below, and
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(b)
arrangements made by or on behalf of the purchaser of the
goods following the sale by auction result in the importation of
the goods from a place outside the member States,

the value of the goods shall not be taken for the purposes of this Act to
include, in relation to that importation, any commission or premium
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payable to the auctioneer in connection with the sale of the goods.
(2B)
That procedure is the customs procedure for temporary importation
with total relief from import duties provided for in Articles 137 to 141
of Council Regulation 2913/92/EEC establishing the Community
Customs Code.”
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(4)
Subsections (1) to (3) come into force on such day as the Treasury may by order
made by statutory instrument appoint.
Avoidance and fraud
19
Missing trader intra-community fraud
(1)
After section 55 of VATA 1994 (customers to account for tax on supplies of gold
35
etc) insert—
“55A
Customers to account for tax on supplies of goods of a kind used in
missing trader intra-community fraud
(1)
Subsection (3) applies if—

Finance (No.2) Bill
Part 2 — Value added tax
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(a)
a taxable (but not a zero-rated) supply of goods (“the relevant
supply”) is made to a person (“the recipient”),
(b)
the relevant supply is of goods to which this section applies (see
subsection (9)),
(c)
the relevant supply is not an excepted supply (see subsection
5
(10)), and
(d)
the total value of the relevant supply, and of corresponding
supplies made to the recipient in the month in which the
relevant supply is made, exceeds £1,000 (“the disregarded
amount”).
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(2)
For this purpose a “corresponding supply” means a taxable (but not a
zero-rated) supply of goods which—
(a)
is a supply of goods to which this section applies, and
(b)
is not an excepted supply.
(3)
The relevant supply, and the corresponding supplies made to the
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recipient in the month in which the relevant supply is made, are to be
treated for the purposes of Schedule 1—
(a)
as taxable supplies of the recipient (as well as taxable supplies
of the person making them), and
(b)
in so far as the recipient is supplied in connection with the
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carrying on by him of any business, as supplies made by him in
the course or furtherance of that business,

but the relevant supply, and those corresponding supplies, are to be so
treated only in so far as their total value exceeds the disregarded
amount.
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(4)
Nothing in subsection (3)(b) requires any supply to be disregarded for
the purposes of Schedule 1 on the grounds that it is a supply of capital
assets of the recipient’s business.
(5)
For the purposes of subsections (1) and (3), the value of a supply is
determined on the basis that no VAT is chargeable on the supply.
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(6)
If—
(a)
a taxable person makes a supply of goods to a person (“the
recipient”) at any time,
(b)
the supply is of goods to which this section applies and is not an
excepted supply, and
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(c)
the recipient is a taxable person at that time and is supplied in
connection with the carrying on by him of any business,

it is for the recipient, on the supplier’s behalf, to account for and pay tax
on the supply and not for the supplier.
(7)
The relevant enforcement provisions apply for the purposes of this
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section, in relation to any person required under subsection (6) to
account for and pay any VAT, as if that VAT were VAT on a supply
made by him.
(8)
For this purpose “the relevant enforcement provisions” means so much
of—
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(a)
this Act and any other enactment, and
(b)
any subordinate legislation,

Finance (No.2) Bill
Part 2 — Value added tax
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as has effect for the purposes of, or in connection with the enforcement
of, any obligation to account for and pay VAT.
(9)
For the purposes of this section, goods are goods to which this section
applies if they are of a description specified in an order made by the
Treasury.
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(10)
For the purposes of this section, an “excepted supply” means a supply
which is of a description specified in, or determined in accordance
with, provision contained in an order made by the Treasury.
(11)
Any order made under subsection (10) may describe a supply of goods
by reference to—
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(a)
the use which has been made of the goods, or
(b)
other matters unrelated to the characteristics of the goods
themselves.
(12)
The Treasury may by order substitute for the sum for the time being
specified in subsection (1)(d) such greater sum as they think fit.
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(13)
The Treasury may by order make such amendments of any provision
of this Act as they consider necessary or expedient for the purposes of
this section or in connection with this section.

But no order may be made under this subsection on or after 22nd March
2009.
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(14)
Any order made under this section (other than one under subsection
(12)) may—
(a)
make different provision for different cases, and
(b)
contain supplementary, incidental, consequential or
transitional provisions.”.
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(2)
After section 26A of VATA 1994 (disallowance of input tax where
consideration not paid) insert—
“26AB
Adjustment of output tax in respect of supplies under section 55A
(1)
This section applies if—
(a)
a person is, as a result of section 26A, taken not to have been
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entitled to any credit for input tax in respect of any supply, and
(b)
the supply is one in respect of which the person is required
under section 55A(6) to account for and pay VAT.
(2)
The person is entitled to make an adjustment to the amount of VAT
which he is so required to account for and pay.
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(3)
The amount of the adjustment is to be equal to the amount of the credit
for the input tax to which the person is taken not to be entitled.
(4)
Regulations may make such supplementary, incidental, consequential
or transitional provisions as appear to the Commissioners to be
necessary or expedient for the purposes of this section.
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(5)
Regulations under this section may in particular—
(a)
make provision for the manner in which, and the period for
which, the adjustment is to be given effect,

Finance (No.2) Bill
Part 2 — Value added tax
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(b)
require the adjustment to be evidenced and quantified by
reference to such records and other documents as may be
specified by or under the regulations,
(c)
require the person entitled to the adjustment to keep, for such
period and in such form and manner as may be so specified,
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those records and documents,
(d)
make provision for readjustments if any credit for input tax is
restored under section 26A.
(6)
Regulations under this section may make different provision for
different circumstances.”.
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(3)
In section 97 (orders, rules and regulations), in subsection (4) (orders which
cease to have effect unless approved by House of Commons), after paragraph
(e) insert—
“(ea)
an order under section 55A(13);”.
(4)
The amendments made by this section have effect in relation to supplies made
15
on or after such day as the Treasury may by order made by statutory
instrument appoint.
(5)
An order under subsection (4) may contain transitional provision and savings.
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Power to inspect goods
(1)
In Schedule 11 to VATA 1994 (administration, collection and enforcement),
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paragraph 10 (entry and search of premises and persons) is amended as
follows.
(2)
After sub-paragraph (2) (power to inspect premises and goods found on them)
insert—
   “(2A)
The power under sub-paragraph (2) above to inspect any goods
25
includes, in particular,—
(a)
power to mark the goods, or anything containing the goods,
for the purpose of indicating that they have been inspected,
and
(b)
power to record any information (which may be obtained by
30
electronic or any other means) relating to the goods that have
been inspected.”.
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Directions to keep records where belief VAT might not be paid
(1)
VATA 1994 is amended as follows.
(2)
After section 69A (breach of record-keeping requirements etc in relation to
35
transactions in gold) insert—
“69B
Breach of record-keeping requirements imposed by directions
(1)
If any person fails to comply with a requirement imposed under
paragraph 6A(1) of Schedule 11, the person is liable to a penalty.
(2)
The amount of the penalty is equal to £200 multiplied by the number of
40
days on which the failure continues (up to a maximum of 30 days).

Finance (No.2) Bill
Part 2 — Value added tax
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(3)
If any person fails to comply with a requirement to preserve records
imposed under paragraph 6A(6) of Schedule 11, the person is liable to
a penalty of £500.
(4)
If it appears to the Treasury that there has been a change in the value of
money since—
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(a)
the day on which the Finance Act 2006 is passed, or
(b)
(if later) the last occasion when the power conferred by this
subsection was exercised,

they may by order substitute for the sums for the time being specified
in subsections (2) and (3) such other sums as appear to them to be
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justified by the change.
(5)
But any such order does not apply to a failure which began before the
date on which the order comes into force.
(6)
A failure by any person to comply with any requirement mentioned in
subsection (1) or (3) does not give rise to a liability to a penalty under
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this section if the person concerned satisfies—
(a)
the Commissioners, or
(b)
on appeal, a tribunal,

that there is a reasonable excuse for the failure.
(7)
If by reason of conduct falling within subsection (1) or (3) a person—
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(a)
is assessed to a penalty under section 60, or
(b)
is convicted of an offence (whether under this Act or otherwise),

that conduct does not also give rise to a penalty under this section.”.
(3)
In section 76(1) (assessment of amounts due by way of penalty, interest or
surcharge) for “69A”, in both places, substitute “69B”.
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(4)
In section 83 (appeals)—
(a)
in paragraph (n) (penalties or surcharges by virtue of any of sections 59
to 69A) for “69A” substitute “69B”, and
(b)
after paragraph (z) (conditions imposed by virtue of paragraph 2B(2)(c)
or 3(1) of Schedule 11) insert—
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“(zza)
a direction under paragraph 6A of Schedule 11;”.
(5)
In section 84 (further provision relating to appeals) after subsection (7A)
(appeals against directions mentioned in section 83(wa)) insert—
“(7B)
Where there is an appeal against a decision to make such a direction as
is mentioned in section 83(zza)—
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(a)
the tribunal shall not allow the appeal unless it considers that
the Commissioners could not reasonably have been satisfied
that there were grounds for making the direction;
(b)
the direction shall have effect pending the determination of the
appeal.”.
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(6)
In Schedule 11 (administration, collection and enforcement), after paragraph 6
(duty to keep records) insert—
“6A   (1)
The Commissioners may direct any taxable person named in the
direction to keep such records as they specify in the direction in
relation to such goods as they so specify.
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Finance (No.2) Bill
Part 2 — Value added tax
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      (2)
A direction under this paragraph may require the records to be
compiled by reference to VAT invoices or any other matter.
      (3)
The Commissioners may not make a direction under this paragraph
unless they have reasonable grounds for believing that the records
specified in the direction might assist in identifying taxable supplies
5
in respect of which the VAT chargeable might not be paid.
      (4)
The taxable supplies in question may be supplies made by—
(a)
the person named in the direction, or
(b)
any other person.
      (5)
A direction under this paragraph—
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(a)
must be given by notice in writing to the person named in it,
(b)
must warn that person of the consequences under section 69B
of failing to comply with it, and
(c)
remains in force until it is revoked or replaced by a further
direction.
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      (6)
The Commissioners may require any records kept in pursuance of
this paragraph to be preserved for such period not exceeding 6 years
as they may require.
      (7)
Sub-paragraphs (4) to (6) of paragraph 6 (preservation of
information by means approved by the Commissioners) apply for
20
the purposes of this paragraph as they apply for the purposes of that
paragraph.
      (8)
This paragraph is without prejudice to the power conferred by
paragraph 6(1) to make regulations requiring records to be kept.
      (9)
Any records required to be kept by virtue of this paragraph are in
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addition to any records required to be kept by virtue of paragraph
6.”.
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Treatment of credit vouchers
(1)
VATA 1994 is amended as follows.
(2)
In section 97 (orders, rules and regulations), in subsection (4) (orders which
30
cease to have effect unless approved by House of Commons), after paragraph
(f) insert—
“(fa)
an order under paragraph 3(4) of Schedule 10A;”.
(3)
In paragraph 3 of Schedule 10A (treatment of credit vouchers), after sub-
paragraph (3) (circumstances in which consideration for supply of credit
35
voucher not to be disregarded under sub-paragraph (2) for the purposes of
Act) insert—
    “(4)
The Treasury may by order specify other circumstances in which
sub-paragraph (2) above does not apply.”.

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 1 — Income tax and corporation tax: charge and rate bands
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Part 3
Income tax, corporation tax and capital gains tax
Chapter 1
Income tax and corporation tax: charge and rate bands
Income tax
5
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Charge and rates for 2006-07
Income tax shall be charged for the year 2006-07, and for that year—
(a)
the starting rate shall be 10%;
(b)
the basic rate shall be 22%;
(c)
the higher rate shall be 40%.
10
Corporation tax
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Charge and main rate for financial year 2007
Corporation tax shall be charged for the financial year 2007 at the rate of 30%.
25
Small companies’ rate and fraction for financial year 2006
For the financial year 2006—
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(a)
the small companies’ rate shall be 19%, and
(b)
the fraction mentioned in section 13(2) of ICTA (marginal relief for
small companies) shall be 11/400ths.
26
Abolition of corporation tax starting rate and non-corporate distribution rate
(1)
Section 13AA of ICTA (corporation tax starting rate) shall cease to have effect.
20
(2)
Section 13AB of ICTA (the non-corporate distribution rate), and Schedule A2
to that Act (supplementary provisions in relation to that rate), shall cease to
have effect.
(3)
In section 13A of ICTA (close investment-holding companies), in subsection (1)
(meaning of “close investment-holding company” for purposes of sections
25
13(1) and 13AA(8)), omit “or 13AA(8)”.
(4)
In section 468 of ICTA (authorised unit trusts), in subsection (1A) (rate of
corporation tax in relation to such trusts), for “and sections 13, 13AA and 13AB
shall not apply” substitute “and section 13 shall not apply”.
(5)
In section 468A of ICTA (open-ended investment companies), in subsection (1)
30
(rate of corporation tax in relation to such companies), for “(and sections 13,
13AA and 13AB shall not apply)” substitute “(and section 13 shall not apply)”.
(6)
In paragraph 1(a) of Schedule 12 to FA 1989 (provision of information for the
purposes of close companies provisions), for “13 to 13A” substitute “13, 13ZA,
13A”.
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