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Anti Avoidance

Volume 512: debated on Tuesday 22 June 2010

The Chancellor of the Exchequer announced today as part of the Budget an increase in the standard rate of VAT to 20 % to take effect from 4 January 2011.

The Government have taken this step to contribute to tackling the deficit. To protect the public finances from artificial avoidance aimed at exploiting the change in VAT rate where there is no current economic activity, the Finance Bill 2010 will contain anti-forestalling legislation to ensure that the VAT rate change is fully effective.

Anti-forestalling legislation will apply from today to ensure that, in the circumstances specified, supplies with a basic time of supply after the VAT rate increase takes effect will be subject to the rate of VAT in force at that time. The provisions are designed to prevent artificial forestalling while not affecting genuine commercial transactions, and few businesses will need to operate them. The legislation is not intended to catch the normal commercial activity of providing goods and services.

The anti-forestalling legislation will apply from today, but any extra VAT arising from its operation will not become due at the earliest until the date of the VAT rate change. Until then, suppliers should continue to account for VAT as normal, applying the VAT rate at the time of the prepayment, VAT invoice issue or grant of the right or option.

Further guidance on the anti-forestalling legislation is available at www.hmrc.gov.uk. Copies of the guidance have been deposited in the Libraries of both Houses.