The Gazette 1982

GAZETTE

APRIL 1982

interest in the site to the nominee of the builder. The

liability will extend to the fine and to the value of the in-

terest assured.

V.A.T. Chargeable

Perhaps the first point to be remembered under this

heading is the fact that the charge is made on a propor-

tion of what might be termed "the relevant figure".

This proportion has varied from time to time since the

introduction of the legislation, and currently stands at

20%. The balance is deemed to be zero-rated.

An exception to the foregoing arises where there is an

election to waive the exemption on rental income. The

resultant tax is chargeable on the full rental rather than

on a proportion of same.

The means of establishing the relevant figure differs

according to the nature of the transaction as will be seen

from the following list of examples: -

In sales and kindred matters, it is the considera-

tion receivable viz. the capital payment "including

all taxes, commissions, costs and charges what-

soever, but not including value-added tax

chargeable in respect of the supply".

In taxable self deliveries, the relevant figure is the

tax-exclusive cost of development plus the cost of

the site.

In the case of a reversionary interest it is the value

thereof ascertained by deducting the value of the

interest disposed of from the value of the full in-

terest at the time at which the disposition was

made. It will be remembered that where the in-

terest disposed of is not to revert within twenty

years, the reversion is deemed to be valueless.

In Leases (not ranking as "self-supplies") the rele-

vant figure is the deemed capital value of the rent

created, same being ascertained according to

whichever of the following methods produces the

lowest figure: -

(x) valuation (open market basis) by a competent

Valuer.

(y) three-quarters of the annual amount of the rent

multiplied by the number of complete years, for

which the rent has been created.

(z) by multiplying the initial annual rent by a fraction

having 100 as its numerator and, as its

denominator, the yield to redemption of the Na-

tional Loan (redeemable not less that five years

from issue) last issued before the creation of the

rent.

In cases which combine, say, a fine and a rent, the

relevant figure will be the aggregate of the amount

of the fine and the deemed capital value of the

rent.

The following further points should be remembered: -

(a) In establishing the capital value of rents only

method (x) above may be utilised, where there is

provision for an increase of rent within five years

of the grant of the relevant Lease (because, for ex-

ample, of an intervening review or because the

rent is to be calculated to accord with turnover or

profits).

(b) After some official vacillation, it seems now to be

accepted that the yield on foot of (z) supra is to be

that ruling at the issue of the Loan rather than at

the date of the Lease.

of tax is to be applied to the chargeable element

(20%) of the relevant figure, thereby producing an

effective rate of 3%.

(d) The last pertinent National Loan is the 1434%

Development Stock 2002/04, which is understood

to have had a redemption yield of 16.10% effec-

tively converting the fraction at (z) into a

multiplier of 6.21.

(e) Because of the different methods of computation,

(some being founded in value and others in cost)

the foregoing examples may well produce results,

which superficially may appear to be contradic-

tory.

(0 The foregoing examples may (assuming the

application of the principle of V.A.T. exigibility)

be exemplified by the following figures: -

A Straightforward sale for:

Taxable element - 20%:

V.A.T. @ 15%:

B Self-supply

Site cost:

Development cost (exclusive of V.A.T.):

Taxable element - 20%:

V.A.T. @ 15%:

£100,000

£20,000

£3,000

£10,000

£90,000

£100,000

£20,000

£3,000

C Lease - thirty-five years - rent reviews at five

yearly intervals - initial yearly rent:

£10,000

Under (x) above a valuation must be obtained,

and let us assume that same produces a figure of:

£140,000

Under (y) we get -

34 x £10,000 x 35

Under (z) the formula produces -

£10,000 x 6.21

Lowest = (z) =

Taxable element - 20% =

V.A.T. @ 15% =

£262,500

£62,100

£62,100

£12,420

£1,863

Fixtures/Furnishings

Where goods of different kinds and attracting tax at

two or more rates are supplied under the V.A.T. regime

for a consideration, which is referable to the entire and

not segregated, there is a provision to the effect that tax

is to be chargeable in respect of the whole transaction at

the higher or highest of such rates.

Premises are frequently let with fixtures and fur-

nishings already installed, and at a rent which embraces

the entire. It is in this area that a very serious problem

can arise, particularly, of course, if the intending Lessee