Commentary

V4.181 Exemption—supplies of goods where input tax cannot be recovered

Part V4 Exemption, zero-rating and reduced rates

V4.181 Exemption—supplies of goods where input tax cannot be recovered

Goods on which input tax cannot be recovered

V4.181 Exemption—supplies of goods where input tax cannot be recovered

In 1997 the European Court of Justice held1 that Member states are required to exempt supplies of goods which have been used for exempt purposes or otherwise excluded from the right of deduction.

Consequently, and with effect from 1 March 2000, a supply of goods is an exempt supply where each of the following conditions is satisfied2.

  1.  

    (a)     The person making the supply (the 'relevant supplier'), or any 'predecessor' (see below) of his, has incurred (or will incur) input tax on obtaining the goods supplied, or any other goods used in the process of producing the goods supplied so as to be incorporated in them. For this purpose, input tax is deemed to include VAT incurred by the person concerned when he was not a taxable person (ie when he was not registered or liable to be registered). In a case where the supply is the grant of a major interest in land, other than one excluded under (c) below, the input tax must be incurred on either:

  2.  
    1.  

      (i)     acquiring a major interest in the land concerned, or

    2.  

      (ii)     goods used in the construction of a building or civil engineering work so as to become

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