CE3

9 March 1999

A FAIRER SHARE OF VAT FOR BUSINESS

A package of measures to move towards a fairer distribution of the
VAT burden and reduce competitive distortions was announced today.
The measures, which form part of the Government's commitment to a
fairer tax system, will:

- clarify the VAT exemptions for financial services;

- change the rules for businesses that are allowed to claim VAT on
purchases used to make certain VAT exempt supplies, to counter
abuse.

DETAILS

The VAT exemptions for services bought in by banks and other
financial service providers have been broadened by recent legal
challenges. From today, the exemption will re-focus on purely
financial services and intermediary services such as brokerage. All
credit management and most processing services again become liable to
standard rate VAT.

The VAT partial exemption simplification rule, that allows some
businesses to recover all the VAT on their purchases, despite making
certain exempt supplies, is being abolished. This will take effect
from midnight tonight but for most partly exempt businesses affected,
the benefit of the rule will no longer be available from the
beginning of their next partial exemption tax year. The measure will
yield #75m a year. There is no change to the de minimis rules that
allow businesses that make small volumes of exempt supplies to
recover all the VAT on their purchases. The withdrawing of the
simplification rule therefore has little effect on smaller
businesses.

NOTES FOR EDITORS

1. Details for businesses are in Budget Notices 17/99 and 24/99,
which are available from Customs and Excise Business Advice Centres
and from the Customs and Excise Internet site.

Press enquiries only to HM Customs and Excise, Public Relations
Office, New King's Beam House, 22 Upper Ground, London, SE1 9PJ.
Telephone: 0171 865 5468/5471

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.hmce.gov.uk

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