A Finance Bill measure to change the VAT zero-rate for printed matter does not need to be amended, HMRC have concluded, but issues raised during consultation will be covered in guidance.
A common theme among responses to the December 2010 consultation was that the legislation has a ‘far wider’ impact than intended, HMRC said.
The ICAEW Tax Faculty said in its response to the consultation: ‘We do not believe that it is the intention of this clause to remove zero-rating from a wide range of books and other printed matter and instead subject them to 20% VAT or convert them into exempt supplies.
‘But it risks starting that effect unless the draft is amended to make it more targeted.’
In an attempt to allay respondents’ concerns, HMRC have published a note setting out their interpretation of clause 74 of the Finance Bill and examples to demonstrate that the scope is ‘limited to the areas targeted’.
Clause 74 counters tax avoidance schemes designed to obtain a tax treatment that would apply if separate supplies were being made, when ‘in substance the business is making a single supply’, according to HMRC’s explanatory note to the Bill.
‘In particular such schemes aim to attribute a value for tax purposes to something for which no charge is being made commercially. European and domestic judgments have stated in clear terms that supplies that comprise a single service from an economic point of view should not be artificially split.’
The measure is limited to ‘transaction splitting’ involving printed matter, said Michael Conlon QC, writing in Tax Journal (29 March 2011). ‘But could it set the scene for similar arrangements involving other zero-rated or, possibly, exempt supplies and further legislation in the future?’ he added.
HMRC rejected calls for supply splitting to be tackled by means of the abuse of rights principle, on the basis that ‘jurisprudence around abuse of rights is still is not as developed as that of the principle of single supply’.
Clause 74 will be considered by the Public Bill Committee, whose first setting is scheduled for tomorrow.
A Finance Bill measure to change the VAT zero-rate for printed matter does not need to be amended, HMRC have concluded, but issues raised during consultation will be covered in guidance.
A common theme among responses to the December 2010 consultation was that the legislation has a ‘far wider’ impact than intended, HMRC said.
The ICAEW Tax Faculty said in its response to the consultation: ‘We do not believe that it is the intention of this clause to remove zero-rating from a wide range of books and other printed matter and instead subject them to 20% VAT or convert them into exempt supplies.
‘But it risks starting that effect unless the draft is amended to make it more targeted.’
In an attempt to allay respondents’ concerns, HMRC have published a note setting out their interpretation of clause 74 of the Finance Bill and examples to demonstrate that the scope is ‘limited to the areas targeted’.
Clause 74 counters tax avoidance schemes designed to obtain a tax treatment that would apply if separate supplies were being made, when ‘in substance the business is making a single supply’, according to HMRC’s explanatory note to the Bill.
‘In particular such schemes aim to attribute a value for tax purposes to something for which no charge is being made commercially. European and domestic judgments have stated in clear terms that supplies that comprise a single service from an economic point of view should not be artificially split.’
The measure is limited to ‘transaction splitting’ involving printed matter, said Michael Conlon QC, writing in Tax Journal (29 March 2011). ‘But could it set the scene for similar arrangements involving other zero-rated or, possibly, exempt supplies and further legislation in the future?’ he added.
HMRC rejected calls for supply splitting to be tackled by means of the abuse of rights principle, on the basis that ‘jurisprudence around abuse of rights is still is not as developed as that of the principle of single supply’.
Clause 74 will be considered by the Public Bill Committee, whose first setting is scheduled for tomorrow.
