H.M. TREASURY Notes on Clauses

CLAUSE 17: VALUE ADDED TAX (MEANING OF "BUSINESS")

INTRODUCTION

1. This clause and schedule brings certain membership subscriptions, which are currently disregarded for VAT purposes, into the scope of VAT, from a date to be appointed. It repeals section 94(3) of the Value Added Tax Act 1994 and the repeal is listed in Schedule 20 Part II (2). These subscriptions, which are to non-profit making organisations with aims of a political, religious, patriotic, philosophical or philanthropic nature will simultaneously become exempt from VAT by means of secondary legislation.

DETAILS OF THE CLAUSE

2. Subsection (1) introduces the clause which effects the repeal of section 94(3). Section 94(3) sets out the circumstances in which these subscriptions are treated as outside the scope of VAT. This is where the subscription obtains no benefit for the member other than the right to take part in the management of the organisation or receive reports on its activities and where these are the only taxable supplies. The practical effect of the repeal will be to bring such subscriptions into the scope of VAT.

3. Subsection (2) provides that the repeal will take effect from a date to be appointed by statutory instrument. Exemption for these subscriptions will be introduced from the same date by secondary legislation. The secondary legislation will expand the existing exemption for subscriptions in Group 9 of Schedule 9 to the Value Added Tax Act 1994.

BACKGROUND

4. Article 13A(1)(l) of the EC Sixth VAT Directive obliges member states to exempt these membership subscriptions.

5. In its judgment in Commission v Italian Republic (Case - C45/95), the European Court of Justice ruled that exempt supplies cannot be treated as outside the scope of VAT, unless the effect for VAT purposes is the same.

6. Where current UK VAT law treats these subscriptions as outside the scope of VAT, this prevents the affected bodies from reclaiming input VAT on the costs of publications supplied as a benefit of membership.

7. This measure, in combination with the introduction of exemption and existing rules affecting zero-rating of publications, will enable such bodies to reclaim input VAT on the costs of supplying such items.

8. No VAT is currently charged on such subscriptions and no VAT will be charged, when they become exempt.

9. The background and effects of the changes will be explained in a Technical Note, which is to be published by Customs and Excise in early April 1999, along with a draft of the secondary legislation.

10. Exemption is expected to replace the current treatment of subscriptions from an appointed date in Autumn 1999.