HMRC clarifies CGS interval end dates after VAT de-grouping

Capital Goods Scheme (CGS) intervals following VAT de-grouping end on the anniversary of the event, HMRC now says. Its earlier guidance put de-grouping together with first entry into a VAT group and transfers of a going concern (TOGC), stating that subsequent intervals ended on the day before the anniversary. The revised wording separates de-grouping from those other events.

For a business leaving a VAT group with a capital item still within its adjustment period, the underlying statutory rule is more specific. On the first qualifying event during that period, regulation 114(5A) ends the current interval on the day the owner ceases to be a group member.Legislation Subsequent intervals end on successive anniversaries of that day.Legislation This applies whether or not the owner immediately joins another VAT group.Legislation

For first entry into a VAT group, HMRC continues to say that subsequent intervals end on the day before the anniversary of entry.GOV Regulation 114(5A) closes the current interval on the day before the owner joins the group.Legislation Businesses should therefore distinguish joining and leaving when checking their CGS adjustment calendars.

There is a separate qualification for TOGCs. HMRC’s retained wording says subsequent intervals end on the day before the transfer anniversary. Regulation 114(5A)(c) applies where the new owner is not registered with the transferor’s registration number and in substitution for the transferor. For that TOGC, regulation 114(5A) ends the current interval on the day of transfer and subsequent intervals on anniversaries of the transfer day.Legislation Where the number is taken over, regulation 114(7) instead ties the transfer interval to the new owner’s longer period or tax year. The retained manual summary should be read against those statutory distinctions.

The interval boundary also affects how taxable use is measured. For subsequent intervals determined under regulation 114(5A), regulation 116(A2) requires a method agreed with HMRC, subject to its power to allow or direct another method.Legislation HMRC says the normal partial exemption recovery rate cannot simply be used where the item’s interval does not align with the normal tax year.

If normal partial exemption calculations fairly reflect the item’s use, HMRC says an average or weighted average of recovery rates from the two tax years is likely to give a fair result. Agreements should be recorded clearly in writing, separately from any partial exemption special method approval.GOV

Regulations 114(5A) and (7) and 116(A2) and (2) of the Value Added Tax Regulations 1995 (SI 1995/2518) govern these interval and taxable-use rules.Legislation