Finance Bill

House of Commons

Session 2010 - 11
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Finance Bill

Finance Bill
Schedule 2 — Supplementary charge to VAT
Part 1 — Supplementary charge to VAT
11

Schedule 2
Section 2

Supplementary charge to VAT
Part 1
Supplementary charge to VAT
The charge
5
1     (1)
There is a supplementary charge to value added tax on a supply of goods or
services that is treated as taking place on or after 22 June 2010 if—
(a)
the supply spans the date of the VAT change,
(b)
it is subject to VAT at the rate in force under section 2 of VATA 1994,
(c)
the person to whom the supply is made is not entitled under VATA
10
1994 to credit for, or the repayment or refund of, all of the VAT on
the supply, and
(d)
a relevant condition is met.
      (2)
In this Schedule “the date of the VAT change” means 4 January 2011.
      (3)
For the cases in which a supply, other than the grant of a right to goods or
15
services, spans the date of the VAT change and the relevant conditions in
relation to such a supply, see paragraph 2.
      (4)
For the cases in which a supply consisting of the grant of a right to goods or
services spans the date of the VAT change and the relevant conditions in
relation to such a supply, see paragraph 3.
20
      (5)
Sub-paragraph (1) has effect subject to the exceptions made by or under Part
2 of this Schedule.
      (6)
In this Schedule—
Part 3 contains provision about liability for, and the amount of, a
supplementary charge under this Schedule,
25
Part 4 contains special provision about listed supplies, and
Part 5 contains provision about administration and interpretation.
      (7)
A supplementary charge to value added tax under this Schedule is to be
treated for all purposes as if it were value added tax charged in accordance
with VATA 1994.
30
Supply spanning the date of the VAT change
2     (1)
For the purposes of this Schedule, a supply of goods or services spans the
date of the VAT change where—
(a)
by virtue of the issue of a VAT invoice or the receipt of a payment by
the person making the supply (“the supplier”), the supply is treated
35
as taking place before the date of the VAT change, but
(b)
the basic time of supply (see paragraph 4) is on or after the date of the
VAT change.
      (2)
The relevant conditions are—
(a)
in relation to a supply that is within sub-paragraph (1)(a) by virtue
40
of the issue of a VAT invoice, conditions A to D, and

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Schedule 2 — Supplementary charge to VAT
Part 1 — Supplementary charge to VAT
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(b)
in relation to a supply that is within sub-paragraph (1)(a) by virtue
of the receipt of a payment, conditions A to C.
      (3)
Condition A is that the supplier and the person to whom the supply is made
are connected with each other at any time in the period—
(a)
beginning with the day on which the supply is treated as taking
5
place, and
(b)
ending on the date of the VAT change.
      (4)
Paragraph 5 modifies condition A in cases involving a series of supplies.
      (5)
Condition B is that the aggregate of the following is more than £100,000—
(a)
the relevant consideration for the supply, and
10
(b)
the relevant consideration for every related supply of goods or
services (including every related grant of a right to goods or services)
that spans the date of the VAT change (see paragraph 6).
      (6)
Condition C is that a prepayment in respect of the supply is financed by the
supplier or a person connected with the supplier (see paragraph 7).
15
      (7)
In sub-paragraph (6) “prepayment”, in respect of a supply, means a payment
that is received by the supplier before the basic time of supply.
      (8)
Condition D is that full payment of the amount shown on the VAT invoice
referred to in sub-paragraph (1)(a) is not due before the end of the period of
6 months beginning with the date on which the invoice is issued.
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      (9)
This paragraph does not apply in relation to a supply consisting of the grant
of a right to goods or services (see paragraph 3).
Grant of right spanning the date of the VAT change
3     (1)
For the purposes of this Schedule, a supply consisting of the grant by a
person (“the grantor”) of a right to goods or services spans the date of the
25
VAT change where—
(a)
that supply is treated as taking place before the date of the VAT
change,
(b)
the goods or services are to be supplied at a discount or free of
charge, and
30
(c)
the basic time of supply for the supply of some or all of the goods or
services (see paragraph 4) is on or after the date of the VAT change.
      (2)
In relation to the grant of the right, the relevant conditions are conditions A
to C.
      (3)
Condition A is that the grantor and the person to whom the right is granted
35
are connected with each other at any time in the period—
(a)
beginning with the day on which the supply consisting of the grant
of the right is treated as taking place, and
(b)
ending on the date of the VAT change or, if the right is exercised
(entirely or partly) on a later date, that date (or, if more than one, the
40
first of those dates).
      (4)
Paragraph 5 modifies condition A in cases involving a series of supplies.
      (5)
Condition B is that the aggregate of the following is more than £100,000—
(a)
the relevant consideration for the grant of the right, and

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Schedule 2 — Supplementary charge to VAT
Part 1 — Supplementary charge to VAT
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(b)
the relevant consideration for every related supply of goods or
services (including every related grant of a right to goods or services)
that spans the date of the VAT change (see paragraph 6).
      (6)
Condition C is that the payment made in respect of the grant of the right is
financed by the grantor or a person connected with the grantor (see
5
paragraph 7).
      (7)
In this Schedule references to a right to goods or services include—
(a)
any right or option with respect to such goods or services, and
(b)
any interest deriving from such a right or option.
“Basic time of supply”
10
4     (1)
In this Schedule the “basic time of supply” is the time given by subsection (2)
or (3) of section 6 of VATA 1994 (disregarding subsections (4) to (14) of that
section).
      (2)
Sub-paragraph (1) does not apply in relation to listed supplies (see Part 4 of
this Schedule).
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Series of supplies
5     (1)
This paragraph applies where—
(a)
the supply or grant of a right referred to in paragraph 2 or 3 (“the
affected supply or grant”) is one of a series of supplies of, or grants
of a right to, the same or substantially the same goods or services,
20
and
(b)
each of the supplies, and the grants of a right, in the series was or will
be made in the expectation that the affected supply or grant would
or will take place.
      (2)
In condition A in paragraphs 2 and 3, the references to the supplier and the
25
grantor include any person who makes one of the supplies or grants one of
the rights in the series.
“Relevant consideration” and “related” supplies
6     (1)
This paragraph applies for the purposes of condition B in paragraphs 2 and
3.
30
      (2)
“Relevant consideration” means—
(a)
in relation to a supply that is within paragraph 2(1) by virtue of the
issue of a VAT invoice, the amount shown on that invoice,
(b)
in relation to a supply that is within paragraph 2(1) by virtue of the
receipt of a payment, the amount of that payment, and
35
(c)
in relation to a grant of a right to goods or services within paragraph
3(1), the consideration for the grant of the right,

but does not include any amount in respect of VAT.
      (3)
A supply within paragraph 2(1), or a grant of a right within paragraph 3(1),
is related to another such supply or grant if they are both made as part of the
40
same scheme.
      (4)
“Scheme” includes any arrangements, transaction or series of transactions.

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Schedule 2 — Supplementary charge to VAT
Part 1 — Supplementary charge to VAT
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Financing
7     (1)
This paragraph applies for the purposes of condition C in paragraphs 2 and
3.
      (2)
A payment is financed by a person if, directly or indirectly, the person—
(a)
provides funds to enable the person to whom the supply is made to
5
make the whole or part of the payment (whether the funds are
provided before or after the payment is made),
(b)
procures the provision of such funds by another person,
(c)
provides funds for discharging (in whole or in part) any liability that
has been or may be incurred by any person for or in connection with
10
raising funds to enable the person to whom the supply is made to
make the payment, or
(d)
procures that any such liability is or will be discharged (in whole or
in part) by another person.
      (3)
In sub-paragraph (2) the references to providing funds for a purpose are to—
15
(a)
making a loan of funds that are or are to be used for that purpose,
(b)
providing a guarantee or other security in relation to such a loan,
(c)
providing consideration for the issue of shares or other securities
issued wholly or partly for raising those funds,
(d)
providing consideration for the acquisition by any person of any
20
such shares or securities, or
(e)
any other transfer of assets or value as a consequence of which any
of those funds are made available for that purpose.
Connected persons
8
Section 1122 of CTA 2010 (connected persons) applies for the purposes of
25
this Schedule.
Receipt of payments
9
In this Schedule a reference to receipt of a payment by the person making a
supply or granting a right (however expressed) includes a reference to
receipt by a person to whom a right to receive it has been assigned.
30
Power to change relevant conditions
10    (1)
The Treasury may by order amend this Part of this Schedule by adding,
modifying or omitting relevant conditions.
      (2)
An order under this paragraph—
(a)
may make different provision for different cases, and
35
(b)
may make incidental or consequential amendments of this Schedule.

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Schedule 2 — Supplementary charge to VAT
Part 2 — Exceptions
15

Part 2
Exceptions
Letting etc of assets
11    (1)
This paragraph applies in relation to a supply within paragraph 2 which
arises from the letting, hiring or rental of assets.
5
      (2)
There is no supplementary charge under this Schedule if—
(a)
the period to which the VAT invoice or payment referred to in
paragraph 2(1) relates does not exceed 12 months, and
(b)
the VAT invoice is issued, or the payment is received, in accordance
with normal commercial practice in relation to the letting, hiring or
10
rental of such assets.
Condition B cases involving normal commercial practice
12
There is no supplementary charge under this Schedule on a supply of goods
or services within paragraph 2 or a grant of a right to goods or services
within paragraph 3 if—
15
(a)
the only relevant condition met is condition B, and
(b)
the supply is made, or the right is granted, in accordance with
normal commercial practice in relation to the supply of, or the grant
of a right to, such goods or services.
Condition D cases involving hire purchase, conditional sale or credit sale of goods
20
13
There is no supplementary charge under this Schedule on a supply of goods
within paragraph 2 if—
(a)
the only relevant condition met is condition D,
(b)
the VAT invoice—
(i)
relates to a supply of goods made under a hire-purchase,
25
conditional sale or credit sale agreement,
(ii)
forms part of that agreement, and
(iii)
is issued in accordance with normal commercial practice in
relation to a supply made under such an agreement, and
(c)
the basic time of supply of the goods is intended and expected to be
30
within 6 months of the date of the VAT invoice which relates to the
supply.
Normal commercial practice
14
In this Part of this Schedule, “normal commercial practice”, in relation to a
supply or grant of a right, means—
35
(a)
normal commercial practice of the supplier or grantor at a time when
an increase in the rate of VAT in force under section 2 of VATA 1994
is not expected, or
(b)
if the supplier or grantor has no such practice, the normal
commercial practice of suppliers making similar supplies, or
40
granters granting similar rights, in the United Kingdom at such a
time.

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Schedule 2 — Supplementary charge to VAT
Part 3 — Liability and amount
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Further exceptions
15    (1)
The Treasury may by order provide that there is no supplementary charge
under this Schedule on supplies (including grants of rights to goods or
services) of a description specified in the order.
      (2)
An order under this paragraph—
5
(a)
may make provision having effect in relation to supplies of goods or
services that are treated as taking place on or after 22 June 2010 or a
later date, and
(b)
may have effect in relation to a supplementary charge which has
become due before the order is made.
10
Part 3
Liability and amount
Liability
16    (1)
A supplementary charge under this Schedule on a supply within paragraph
2—
15
(a)
is a liability of the supplier (subject to sub-paragraph (3)), and
(b)
becomes due on the date of the VAT change (rather than at the time
of supply).
      (2)
A supplementary charge under this Schedule on a supply consisting of the
grant of a right to goods or services within paragraph 3—
20
(a)
is a liability of the grantor (subject to sub-paragraph (3)), and
(b)
becomes due on the first occasion on or after the date of the VAT
change on which the right is exercised (rather than at the time the
right is granted).
      (3)
If, on the date on which the supplementary charge becomes due, the person
25
who would be liable to pay the charge under sub-paragraph (1) or (2)—
(a)
is not a taxable person, but
(b)
is treated as a member of a group under sections 43A to 43D of VATA
1994,

the supplementary charge is a liability of the representative member of the
30
group.
Amount
17    (1)
The amount of the supplementary charge on a supply within paragraph 2 is
equal to the difference between—
(a)
the amount of VAT chargeable on the supply apart from this
35
Schedule, and
(b)
the amount of VAT that would be chargeable on the supply if it were
subject to VAT at the rate of 20%.
      (2)
The amount of the supplementary charge on a grant of a right to goods or
services within paragraph 3 is equal to the difference between—
40
(a)
the amount of VAT chargeable on the grant of the right apart from
this Schedule, and

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Schedule 2 — Supplementary charge to VAT
Part 4 — Listed supplies
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(b)
the amount of VAT that would be chargeable on the grant of the right
if it were subject to VAT at the rate of 20%,

(but see sub-paragraph (3)).
      (3)
If the basic time of supply for some of those goods and services is before the
date of the VAT change, sub-paragraph (2) has effect as if the references to
5
the amount of VAT chargeable and to the amount of VAT that would be
chargeable were references to the relevant proportion of each of those
amounts.
      (4)
“The relevant proportion” is—

where—
10
P is so much of the consideration for the grant of the right as is
attributable on a just and reasonable basis to a right to the goods and
services for which the basic time of supply is on or after the date of
the VAT change, and
W is the whole of the consideration for the grant of the right.
15
Part 4
Listed supplies
“Listed supply”
18    (1)
In this Schedule “listed supply” means a supply falling within sub-
paragraph (2)—
20
(a)
which is made for a consideration the whole or part of which is
determined or payable periodically or from time to time, and
(b)
which is treated as taking place by virtue of the issue of a VAT
invoice or the receipt of a payment by the person making the supply.
      (2)
The following supplies fall within this sub-paragraph—
25
(a)
a supply of services,
(b)
a supply arising from the grant of a major interest in land,
(c)
a supply of water other than—
(i)
distilled water, deionised water or water of similar purity, or
(ii)
bottled water,
30
(d)
a supply of—
(i)
coal gas, water gas, producer gases or similar gases, or
(ii)
petroleum gases, or other gaseous hydrocarbons, in a
gaseous state,
(e)
a supply of power, heat, refrigeration or ventilation, and
35
(f)
a supply of goods together with services in the course of the
construction, alteration, demolition, repair or maintenance of a
building or civil engineering work.
      (3)
The Treasury may by order amend sub-paragraph (2) by—
(a)
adding or omitting any description of supply, or
40
(b)
varying any description of supply for the time being listed in that
sub-paragraph.