CE1

9 March 1999

FAIRNESS FOR BUSINESS ON VAT GROUPS

Changes are to be made to the VAT grouping facility to ensure a more
flexible and efficient VAT system for business, the Chancellor
announced today.

Customs and Excise have been reviewing the VAT grouping facility to
see if it is possible to achieve a better balance between revenue
costs to the Exchequer and compliance costs to business. As a result
of this review, the grouping provisions will become more flexible for
business whilst, at the same time, tightened to prevent abuse.

Customs will continue to monitor the grouping facility for avoidance
and a Mini General Anti Avoidance Rule is being considered in this
area.

DETAILS

Last year, Customs consulted businesses on options for changing the
VAT grouping provisions. The changes announced today take account of
written responses from businesses and meetings with representatives
of many sectors of the business community. The changes will meet the
needs both of the Exchequer and of businesses.

Copies of the summary report on the consultation can be obtained from
Marco Crisp at the address below.

HM Customs and Excise
VAT Policy Directorate
Collection Division
Registration Branch
4th Floor South West
Queens Dock
Liverpool, L74 4AA

Fax: 0151 703 8397

http://www.hmce.gov.uk

NOTES FOR EDITORS

1. VAT law allows companies under common control to be treated as a
single entity for VAT purposes. This is a business facilitation
measure designed to reduce the administrative burdens on businesses.
The VAT group only has one VAT registration and supplies between
members are disregarded for VAT purposes.

2. Customs have reviewed the current rules for VAT groups and the
balance between business facilitation and revenue cost. They
consulted businesses and the changes announced today reflect their
responses. The legal changes will be effected by amendments to the
VAT Act 1994 as from Royal Assent. The details are as follows:

- removing the requirement for businesses to give 90 days notice when
they apply to form, join, leave or disband a VAT group;

- giving Customs the power to remove from groups, companies that are
no longer eligible to be grouped or whose membership of a group
poses a threat to the revenue;

- changing the eligibility criteria relating to territorial scope
(i.e. whether a company has a sufficient presence within the UK to
be eligible for grouping); and

- extending businesses' rights of appeal in respect of grouping.

The new rules of territorial scope will be applied to all new
applications made or received after Royal Assent. However, existing
group members will have until 1 January 2000 to ensure that they
comply with the new criteria. Those group members that do not satisfy
the new tests will be required to leave their groups by 1 January
2000.

3. It is estimated that the above measures will raise #5 million in
the first year rising to #10 million in the following two years. It
is also estimated that they will protect at least a further #40
million a year that would be lost through avoidance.

4. Although the changes announced today are aimed at making the
grouping facility fairer, they also enable Customs to counter some
forms of avoidance. However, VAT grouping is one of the areas of VAT
that has been identified as potentially suitable for the introduction
of a Mini General Anti-Avoidance Rule at some later date should there
be further abuse of the facility.

5. Details for businesses are published in Budget Notice 56/99 which
is available from Customs and Excise Business Advice Centres and from
the Customs and Excise Internet site.

Press enquiries only to HM Customs & Excise, Public Relations Office,
New Kings Beam House, 22 Upper Ground, London, SE1 9PJ.
Telephone: 0171-865-5468/5471/5472

Others should contact their local VAT Business Advice Centre, listed
under Customs and Excise in the telephone book.

Customs and Excise Internet address:
http://www.open.gov.uk/customs/c&ehome.htm

This news release can also be found at:
http://www.hm-treasury.gov.uk

Other Treasury material can also be found at this address.

# = pounds sterling