No: C&E 13                           29 November 1994


                         BUDGET 1994 : VAT

          ZERO-RATING OF EXPORTS BY REGISTERED CHARITIES


The Chancellor proposes to repeal a little used section of
the VAT Act 1994 to prevent it being used as a basis for tax
avoidance, and to provide alternative legislative cover for its only
legitimate use, which is to allow registered charities to reclaim VAT they
have paid on goods which they are exporting for charitable purposes.
The zero-rating of charities' exports also relies upon an extra
statutory concession which will be legislated for at the same time.

The Chancellor's intention is to block a potential tax
loophole, but at the same time provide continuing cover for zero-rating
charity exports.

The changes will take effect from Royal Assent.


NOTES FOR EDITORS

1.     Section 30(5) (originally 16(5) of the VAT Act 1983)
was enacted to treat transfers of goods and services by UK
subsidiaries to overseas parent companies as zero-rated exports for VAT
purposes. This enabled UK subsidiaries to recover input tax on related
costs     and overheads. Zero-rating is now provided elsewhere under
the VAT   Act 1994 and the existing Section 30(5) is no longer
required.

2.     Customs have in the past, as a concession, allowed
zero-rating under Section 30(5) for the export of goods by a registered
charity where the transaction would not otherwise have qualified as
a supply for VAT purposes because it was not made in return for
payment. Along with an Extra Statutory Class Concession (ESCC) treating
goods exported by charity as by way of business for VAT purposes,
this  enabled a charity to register for VAT and to treat any VAT
charged on the goods and related overheads as recoverable input tax.
The new    Section 30(5) provides a firm statutory basis for the
charities' concession and replaces the need for the ESCC.

3.     The estimated revenue effect is nil.

4.     A Compliance Cost Assessment (reference CCA 11) 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
35/94.





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