Brexit VAT regulations passed without opposition

5 Feb 2021

MPs debated and passed two VAT statutory instruments (SIs) that relate to the UK’s exit from the EU, in the Commons this week (3). The Opposition did not oppose either.

The Value Added Tax (Miscellaneous Amendments to Acts of Parliament) (EU Exit) Regulations 2020 (S.I., 2020, No. 1312) applies to the VAT treatment of aircraft handling services and provides for the continued application of zero VAT relief. It also includes a new VAT zero rate for the handling services supplied to international trains and this SI makes a change that allows those supplying pension fund management services to funds established in the EU to recover the VAT that they incur.

The Value Added Tax (Miscellaneous Amendments to the Value Added Tax Act 1994 and Revocation) (EU Exit) Regulations 2020 (S.I., 2020, No. 1544) ensure that a DIY house builder in Northern Ireland can recover VAT charged on materials bought from a supplier in an EU member state. It allows HMRC to obtain information in relation to VAT owed by businesses and individuals in member states and contains measures to prevent unscrupulous businesses from avoiding import VAT (if the customs provision is triggered, the VAT relief will no longer apply as well). It also prevents double taxation for businesses that make exempt supplies and move goods from GB to Northern Ireland.

The Tax Minister Jesse Norman said the two SIs ‘ensure fairness, protect against double taxation and avoidance, and make certain that existing reliefs continue to apply’.

His Labour opposite number, James Murray, was interested in the impact on the tax base of these regulations. He said it is vital that businesses are supported in understanding and being able to follow the new arrangements. He reiterated Labour’s call on the Government to support a major and effective information campaign for British businesses about the new rules on trade with Northern Ireland and to increase capacity at the trader support service.

SNP’s Peter Grant is concerned about the regulation that removes the VAT exemption on fees charged for the management of qualifying pension funds established in an EU member state, wanting to know why it is a consequence of withdrawal from the EU. Surely the exemption could have been retained as part of the trade deal? he asked. Pension holders affected by this change went into a long-term relationship with their pension fund based on the VAT rules that applied at the time, he complained. He asked if it is necessary for every EU member state to now start charging VAT on the management fees for every pension fund that an EU resident holds with a UK pension manager.

Conservative John Redwood wanted to know if these regulations, and all the other VAT and excise rules applying in Northern Ireland and throughout the UK, will be solely administered and enforced by UK authorities ‘because I have much more confidence in them’. Richard Holden, Conservative, wanted assurance that customs and excise staff are not being over-zealous since our departure from the EU, and for the Government to ensure simplification and speed in our customs and excise arrangements wherever possible.

The DUP’s Sammy Wilson remarked that this kind of tinkering through VAT regulations will not answer the issues that people in Northern Ireland face. On the first motion about DIY, he is worried about additional work that anyone will have to undertake to show the VAT that was payable in Ireland or, indeed, in some other EU member state, so that it can be claimed back under these regulations. He added that we must close the loophole between Northern Ireland and GB for those who would seek to use Northern Ireland as a back door to escape paying VAT on goods that may be zero-rated in the UK. He suggested the reasons why some businesses are saying that they are not going to sell to Northern Ireland is simply that they believe that the processes are so complicated, and they have no support.

Alistair Carmichael, Lib Dem, complained about the loss of the VAT retail export scheme which ‘risks seeing the loss of a significant amount of consumer spending in our economy’. Carmichael asked for an update on the one-stop shop that will eventually be available, possibly from 1 July, to deal with the issues around the collection of VAT on online sales to the EU.

DUP’s Jim Shannon said that these SIs do not provide parity for Northern Ireland as an integral part of the UK, ‘yet we pay tax and customs’.

Jesse Norman closed the debate. Norman claimed the trader support service is functioning extremely well. He told Redwood that VAT rules will be administered and enforced by HMRC. He said the Government has created unfettered access for Northern Irish exports into GB and a very comprehensive set of measures to support and facilitate imports into Northern Ireland and to reduce any possible administrative burden. He told Wilson that it is very easy to overstate the complexity of the issues involved. He also told him that no further information will be required from DIY house builders, who will file a single VAT return. He told Holden, who raised the question about jobs and revenue, that the tax information impact note does not expect there to be a significant material difference with regard to these issues. He told Grant who asked about pensions that no new impacts are expected from the legislation.

The full session is here.

By Hamant Verma