No: C&E 11 29 November 1994 BUDGET 1994 : VAT SHARE ISSUES The Chancellor announced changes to the rules on VAT and incidental financial transactions to block a tax avoidance scheme on share issues which is estimated to cost up to Pounds 100 million a year. The intention is to protect the revenue and to bring UK law in this area into line with the principles of European Community (EC) law. The changes will come into effect from 1 December 1994. NOTES FOR EDITORS 1. The issue of shares within the EC is exempt from VAT, which means that traders making an issue cannot reclaim the VAT on any associated costs such as lawyers' and accountants' fees. VAT avoidance schemes have been set up to get round this by selling a few shares outside the EC, because VAT on the costs of selling shares to purchasers outside the EC is recoverable. 2. Selling shares outside the EC would not create a problem if the VAT incurred on the whole share issue was split so that only the VAT relating to the shares sold outside the EC was recovered. However, the current rules do not require traders to make an exact split and, as a result, they have been able to exploit them to reclaim a disproportionate amount of VAT. 3. From accounting periods starting on or after 1 December 1994, businesses will have to identify more precisely the VAT they incur on shares issued outside the EC. 4. A Compliance Cost Assessment (reference CCA 9) is available, copies of which can be obtained from Jill Lewis, BACU3, 10th floor W, HM Customs & Excise, New King's Beam House, 22 Upper Ground, London SE1 9PJ (Tel No: 0171-865-5570). 5. Details for traders are available in Budget notice BN 2/94. ISSUED BY: HM CUSTOMS AND EXCISE, PRESS AND INFORMATION OFFICE, NEW KING'S BEAM HOUSE, 22 UPPER GROUND, LONDON, SE1 9PJ TELEPHONE: 0171 865 5468/5470/5471 FAX: 0171 865 5625