CE7

9 March 1999

VAT: SECURING THE TAX BASE

A further package of measures to tackle VAT avoidance schemes and
close loopholes was announced today. The package builds on the major
steps in the Chancellor's first two Budgets towards a fairer tax
system. It reflects the Government's continuing commitment to ensure
that no one has to bear an unfair level of tax or compensate for
someone else's failure to pay what they should.

The package, which protects over #1.5 billion of future VAT revenue,
includes measures to stop VAT avoidance on land and property
leasebacks, provide a more flexible and efficient VAT grouping
facility and ensure that businesses pay the right amount of VAT when
debts are assigned to third parties.

DETAILS

The package includes measures to combat avoidance schemes which are
or could be used by businesses that:

- misuse the VAT grouping facility (details in Press Notice C&E1).
  Following consultation, Customs will in future be able to remove
  companies compulsorily from VAT groups where this is necessary for
  the protection of the revenue and exclude from groups overseas
  companies that are not established in the UK;

- inflate their recovery of VAT on the construction of a
  non-residential building by leasing it to an associate before
  completion, and then leasing it back;

- exploit the rules applying to construction services. The change on
  construction will replace the existing anti-avoidance measure with
  an approach better targeted on avoidance.

Measures will also be introduced to counter abuse through:

- misuse of the capital goods scheme;

- timing the submission of returns to exploit the repayment
  supplement provisions;

- assigning debts to third parties to reduce the amount of VAT due or
  claiming too much bad debt relief.

NOTES FOR EDITORS

1. Details of each of the measures are in Budget Notices 5/99, 13/99,
50/99, 57/99 and 80/99.

2. Copies of the summary report on the consultation on the VAT
grouping facility 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, LA4 4AA

Fax: 0151 703 8397

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 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.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