COMMISSION OF THE EUROPEAN COMMUNITIES 
Brussels, 27.02.1997 
COM(97)64 final 
Proposal for a 
COUNCIL DECISION 
AUTHORISING THE UNITED KINGDOM TO APPLY AN OPTIONAL 
MEASURE DEROGATING FROM ARTICLE 17 OF THE SIXTH 
DIRECTIVE (77/388/EEC) 
ON THE HARMONIZATION OF THE LAWS OF THE MEMBER STATES 
RELATING TO TURNOVER TAXES 
(presented by the Commission) 

EXPLANATORY MEMORANDUM 
By Council Decision of 23 July 19871, the United Kingdom was authorised, on the 
basis of Article 27(1) to (4) of the Sixth VAT Directive2, to apply a measure 
derogating from Article 17(1) of that Directive until 30 September 1990. By Council 
Decisions of 24 September 1990 (90/497/CEE)3 and of 15 February 1993 
(93/111/EEC)4 further extension of the derogation was permitted until 31 December 
1992 and until 31 December 1996, respectively. 
The derogation forms part of an optional system of taxation for undertakings whose 
annual turnover does not exceed a given ceiling (£350.000 at the moment) in which tax 
is accounted for on the basis of cash paid and received (cash accounting). This system 
is partly based on the third subparagraph of Article 10 (2) of the said Directive, which 
permits payment of tax to be deferred until receipt of the price. 
The object of this derogation, which is designed to simplify collection of the tax, is to 
permit deduction of input tax by firms that have opted for the simplified scheme only 
when it is paid to the supplier. 
By letter registered by the Commission's Secretariat-General on 19 November 1996, 
the United Kingdom Government submitted to the Commission a request for the 
previously authorised derogation to be extended until 31 December 2000 and for the 
ceiling to be increased from £350.000 to £400.000. Differing from the previous 
requests, the United Kingdom Government seeks also authorisation for a derogation 
from the provisions of Article 22(4) and (5), as it believes that the cash accounting 
scheme is rather based on a derogation from these provisions than on the provisions of 
Article 10 (2), which has partly been the basis for the simplified scheme up to now. 
In accordance with Article 27(3) of the Sixth Directive, the other Member States were 
informed by letter dated 18 December 1996 of the United Kingdom's request. 
The United Kingdom considers the extension of the derogation to be amply justified in 
view of the number of firms that have already opted for using the simplified scheme 
and the favourable reception given to it by the trade and professional bodies 
concerned. 
The Commission notes that in 1993 the derogation was authorised by the Council with 
a turnover limit which was, at the time, approximately equivalent to ECU 432.000. In 
its present request for authorisation, the United Kingdom authorities wish the turnover 
limit to be increased to £400.000, which is approximately equal to ECU 541.000. This 
adjustment is considered by the Commission to be acceptable. 
1 OJNoL213. 4.8.1987, p. 40 
2 OJ No L 145, 13.6.1977, p. 1, as last amended by Directive 96/95/EC, OJ No L 338, 28.12.1996, p. 
89 
3 OJ No L 276, 6.10.1990, p. 45 
4 OJ No L 43, 20.2.1993, p. 46 
The United Kingdom Government also requests for a derogation from Article 22 (4) 
and (5), indicating that a derogation from these provisions is a more appropriate 
footing, as the existing scheme does not seek to change the time of the chargeable 
event. 
The Commission would like to point out that the third subparagraph of Article 10 (2) 
permits Member States to fix, for certain transactions of certain categories of taxable 
persons, a moment when the tax shall become chargeable but does not affect the 
moment of the chargeable event. Consequently, the Commission is of the opinion that 
no derogation from Article 22 (4) and (5) is needed. 
Article 17 (1) provides that the right to deduct shall arise at the time the tax becomes 
chargeable. The Commission considers the derogation from Article 17 (1), which 
postpones the right of deduction of tax until it has been paid to the supplier, to be a 
reasonable adjustment to the option provided for in Article 10 (2), which permits 
payment of tax to be deferred until receipt of the price. 
The Commission considers that the United Kingdom can be authorised to apply the 
derogation for a period expiring on 31 December 1999. In fact, the Commission 
adopted on 10 July 1996 a work programme based on a step-by-step approach for 
progressing towards a new common system of VAT (COM (96) 328 final, 22 July 
1996). The last package of proposals to be put forward by mid-1999, the Commission 
considers it appropriate to reconsider the necessity and the coherence of a specific 
measure in the framework of the global approach of the new common VAT system. 
3 
Proposal for a 
COUNCIL DECISION 
AUTHORISING THE UNITED KINGDOM TO APPLY AN OPTIONAL MEASURE 
DEROGATING FROM ARTICLE 17 OF THE SIXTH DIRECTIVE (77/388/EEC) 
ON THE HARMONIZATION OF THE LAWS OF THE MEMBER STATES 
RELATING TO TURNOVER TAXES 
THE COUNCIL OF THE EUROPEAN UNION, 
Having regard to the Treaty establishing the European Community, 
Having regard to the Sixth Council Directive (77/388/EEC) of 17 May 1977 on the 
harmonization of the laws of the Member States relating to turnover taxes - Common 
System of value added tax: uniform basis of assessment1, and in particular Article 27 
thereof, 
Having regard to the proposal from the Commission, 
Whereas, under the terms of Article 27(1) of Directive 77/388/EEC, the Council, 
acting unanimously on a proposal from the Commission, may authorise any Member 
State to introduce special measure for derogation from the provisions of that Directive 
in order to simplify the procedure for charging the tax or to prevent certain types of 
tax evasion or avoidance; 
Whereas the United Kingdom was authorised, by Decision 93/111/EEC2, in 
accordance with the procedure laid down in Article 27(1) to (4) of Directive 
77/388/EEC, to apply a measure derogating from Article 17(1) of the said Directive 
until 31 December 1996; 
Whereas the United Kingdom, by means of a letter registered by the Commission on 
19 November 1996, requested authorisation to extend the said derogation; 
Whereas the other Member States were informed on 18 December 1996 of the United 
Kingdom's request; 
Whereas this special measure derogating from Article 17(1) of Directive 77/388/EEC 
forms part of an optional system of taxation for firms with an annual turnover of less 
than £400.000 based on the third subparagraph of Article 10 (2) of the said Directive, 
which permits payment of tax to be deferred until receipt of the price; 
1 OJ No L 145, 13.6.1977, p. 1, as last amended by Directive 96/95/EC, OJ No L 338, 28.12.1996, p. 
89 
2 OJ No L 43, 20.2.1993, p. 46 
V 
Whereas the United Kingdom wishes to increase the turnover ceiling from £350.000 to 
£400.000 to take account of inflation; 
Whereas a derogation can be accepted in view of the number of firms that already have 
opted for this simplified scheme and the limited duration of this extension; 
Whereas the derogation in question does not have a negative effect on the own 
resources of the European Communities accruing from VAT, 
Whereas the Commission adopted on 10 July 1996 a work programme based on a 
step-by-step approach for progressing towards a new common system of VAT (COM 
(96) 328 final, 22 July 1996); 
Whereas the last package of proposals is to be put forward by mid-1999, the 
authorisation is granted until 31 December 1999, in order to permit an evaluation of 
the coherence of the derogation with the global approach of the new common VAT 
system, 
HAS ADOPTED THIS DECISION: 
5~ 
Article I 
By way of derogation from the provisions of Article 17(1) of Directive 77/388/EEC, 
the United Kingdom is hereby authorised, until 31 December 1999, to provide within 
an optional scheme that enterprises with an annual turnover of less than £400.000 must 
postpone the right of deduction of tax until it has been paid to the supplier. 
Article 2 
This Decision is addressed to the United Kingdom. 
Done at Brussels, 
For the Council, 
The President 
6 
ISSN 0254-1475 
COM(97) 64 final 
DOCUMENTS 
EN 09 06 08 10 
Catalogue number : CB-CO-97-069-EN-C 
ISBN 92-78-16263-9 
Office for Official Publications of the European Communities 
L-2985 Luxembourg 
V-