A delegated legislation committee considered three statutory instruments that will be needed in the event of a ‘no deal’ Brexit:
- Value Added Tax (Place of Supply of Services) (Supplies of Electronic, Telecommunication and Broadcasting Services) (Amendment and Revocation) (EU Exit) Order 2019 (S.I. 2019, No. 404)
- Finance Act 2011, Schedule 23 (Data-gathering Powers) (Amendment) (EU Exit) Regulations 2019 (S.I. 2019, No. 397)
- Customs (Records) (EU Exit) Regulations 2019 (S.I. 2019, No. 113).
Tax Minister Mel Stride said the Value Added Tax Order 2019 amends the Value Added Tax Act 1994 to reverse changes made on 1 January in consequence of an EU-wide change to the place of supply of electronic, telecommunication and broadcasting services, or ‘digital services’. The place of supply rules govern where VAT has to be paid.
On 1 January 2019, the EU made further changes that removed the requirement for EU businesses with very low cross-border trade to register in respect of supplies to consumers in other member states. In those circumstances, VAT is due in the supplier’s member state, subject to any domestic registration threshold. That treatment could no longer apply to UK businesses in the event that the UK left without a deal, because the UK would no longer be a member state.
Why the fuss? Since VAT MOSS is an EU scheme, on exit from the EU, the UK will no longer be eligible to take part in it, he reminded MPs. The SI repeals the most recent changes to the VAT MOSS provisions. The changes made by the order are consistent with the changes to the VAT Act made by the Taxation (Cross-border Trade) Act 2018, which included removal of the VAT MOSS.
The Finance Act 2011, Schedule 23 (Data-gathering Powers) (Amendment) (EU Exit) Regulations 2019 enable HMRC to request data from postal operators in support of the compliance strategy for parcels. If the UK leaves the EU without a deal, the Value Added Tax (Postal Packets and Amendment) (EU Exit) Regulations 2018 would introduce a new policy in respect of imports of parcels, transferring the liability for payment of import VAT on consignments of goods with a value of £135 or less from the UK consumer to the overseas supplier. To enable HMRC to ensure compliance with the new regime, it will be necessary for it to obtain information on those imports from businesses involved in the transaction chain. Schedule 23 to the Finance Act 2011 enables HMRC to collect relevant data from certain third parties
On the Customs (Records) (EU Exit) Regulations 2019, Stride said it will require HMRC to publish a notice containing the requirements for the types of record that importers and exporters and those connected to imports and exports will be expected to keep, the format of those records and the length of time for which they will need to be retained. In conjunction with provisions in the Customs Traders (Accounts and Records) Regulations 1995, it will maintain existing record-keeping requirements, which means that those involved will be required to continue to retain relevant documentation for a customs transaction, on both imports and exports, for a suitable period, usually not less than three years.
Shadow Treasury Minister Jonathan Reynolds said Labour has profound concerns about conducting such significant decision making through the secondary legislative process. Reynolds wondered why the government is not seeking regulatory alignment on some of the VAT issues raised in the debate, even on a temporary basis. On the loss of MOSS, he is concerned about a lack of awareness among small businesses, the lack of an impact assessment and insufficient resource at HMRC to offer support.
On the data-gathering powers, he again spoke of his concern that legislation has been designed to enable a new customs regime without proper parliamentary consultation. He said: “The instrument stipulates that data can be provided only if it is relevant to VAT; however, the rationale for that limitation has not been made clear.”
On Customs (Records), Reynolds complained that while the intention is to replicate the current EU requirements, there is insufficient clarity about what is required and what the potential penalties might be for non-compliance.
SNP’s Alison Thewliss candidly said MPs do not have any real idea how the changes in the VAT Order will affect businesses and what it will cost. On Finance Act 2011, Schedule 23, Thewliss said it is an example of how a no-deal Brexit will have more paperwork and make things far more complicated. She went on to say the definition of ‘postal operator’ (who will have to cover import VAT) is ‘quite wide’ and suggested a consultation process with those affected.
Mel Stride closed the debate saying the statutory instruments were published some time ago. Stride said it is the government’s intention and desire for VAT and other tax issues, and indeed customs measures more generally, between the UK and the EU to be as closely aligned as possible. On the parcels regulations, there will be no additional burden on business, he insisted. On the three-year period for which customs data will have to be held, he said that under the current EU arrangements, however, the data is retained for four years, so the new system will be no more onerous.
The Sis were resolved at the close of this May 14 2019 debate.
The session can be read here.