Commentary

BB/30/97 Statement of Practice on a Budget change to the capital goods scheme

Part V16 Forms and other HMRC material

BB/30/97 Statement of Practice on a Budget change to the capital goods scheme

BB/30/97 Statement of Practice on a Budget change to the capital goods scheme

Business Brief, Issue 30. 19 December 1997

1 Introduction

1.1 Changes to the capital goods scheme announced at the time of the July 1997 Budget included a test to be applied on the disposal of a capital item by the owner during the adjustment period. The test compares the total amount of input tax deducted or deductible on a capital item with the amount of output tax due on the disposal of that item. For the purposes of this statement of practice and the examples annexed, this test will be known as “the disposal test”.

1.2 The policy objective underlying the disposal test is to ensure that partly exempt businesses such as banks, building societies, insurance companies, educational establishments, sports clubs, providers of private health-care and the like, do not obtain an unjustified tax advantage by being able to recover the input tax they incur on land or property which is to be used for exempt purposes.

1.3 The change was announced as part of a package of anti-avoidance measures in the 1997 Budget. It was introduced by the VAT (Amendment) (No 3) Regulations, SI 1997/1614 and came into force with effect from 3 July 1997.

1.4 It is not intended that the disposal test should be applied to bona fide commercial transactions. The legislation gives Customs the power to exclude individual transactions and this power will be used either generally or specifically in cases that do not appear to Customs to

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