Policy paper

The Value Added Tax (Miscellaneous and Transitional Provisions, Amendment and Revocation) (EU Exit) Regulations 2020

Published 10 December 2020

Who is likely to be affected

Businesses and individuals that import goods into the United Kingdom (UK) and European Union (EU) businesses that have incurred Value Added Tax (VAT) in the UK.

General description of the measure

This measure makes amendments to existing VAT legislation, including legislation prepared for exiting the EU without a deal, and introduces saving and transitional provisions so that the UK has a functioning VAT system at the end of the transition period and meets its obligations under the Withdrawal Agreement.

Policy objective

This measure gives certainty for businesses and individuals by making sure the UK has a VAT system that operates as required at the end of the transition period.

Entry in Declarant’s Records (EIDR) is an existing customs facilitation measure which allows businesses to delay completion of a full customs declaration to the fourth working day of the month following the date of import, by declaring the entry of the goods in their business records. As a temporary measure for goods imported from the EU to Great Britain between 1 January 2021 and 30 June 2021, businesses that make an EIDR will instead be able to delay completion of a full customs declaration by up to 6 months. This measure mandates that where a VAT registered business makes a declaration using the EIDR, it must account for the import VAT on its VAT return. In the absence of this provision, the payment of import VAT could be delayed until the full customs declaration is submitted, which would have a cash flow impact on the Exchequer.

The EU VAT refund scheme allows VAT registered businesses to claim a repayment for VAT paid on goods or services in another EU country without having to register for VAT in that EU country. From the end of the transition period, claims will no longer be made under this scheme by EU business incurring VAT in Great Britain (separate provisions will be introduced in relation to Northern Ireland). This measure makes sure EU businesses that incurred VAT in the UK before the end of the transition period are able to submit a claim after the end of the transition period as set out in the terms of the Withdrawal Agreement. This measure also determines how partial exemption annual adjustments (that are used to determine the amount of VAT recoverable by a business that makes both taxable and exempt supplies) are to be accounted for after the end of the transition period which relate to the adjustment of VAT incurred up to 31 December 2020.

The VAT Mini One Stop Shop (MOSS) is an EU wide scheme that allows VAT registered business to account for VAT on the supply of digital services they make, through the tax administration in their home country instead of registering in each EU country where the services are consumed. This scheme will come to end at the end of the transition period. This instrument allows those businesses that make supplies subject to the MOSS scheme to register, account for and make adjustments to supplies made up to the end of the transition period for a limited period after the end of the transition period as set out in the Withdrawal Agreement.

This measure revokes two time-limited EU Council Implementing Decisions that confer derogations from the EU VAT rules that would otherwise apply and in relation to which the UK has made domestic legislation. The removal of these EU Council Implementing Decisions makes sure that this domestic legislation continues after the end of the transition period but is now no longer subject to EU law. The measure also revokes legislation that implemented the policy for postal packets that would have come into force if the UK had left the EU without a deal. Parts of this legislation were started to allow affected businesses to register in advance of EU exit, however, the policy will no longer be implemented.

The measure also makes consequential or technical amendments to other legislation laid in preparation for the UK exiting the EU without a deal which is still relevant for the end of the transition period. The amendments also replace references to exit day with IP completion day (which is the legal term for the end of the transition period) and updates other references in relation to the Withdrawal Agreement.

Background to the measure

The UK left the EU on 31 January 2020 and the transition period after EU exit ends at 11pm on 31 December 2020.

For the VAT system to work at the end of the transition period some amendments are needed to VAT legislation, including legislation laid in preparation for exiting the EU without a deal.

Detailed proposal

Operative date

The measure will come into effect at the end of the transition period at 11pm on 31 December 2020.

Current law

Current law (amended by the Taxation (Cross-border Trade) Act 2018 (TCTA) and legislation laid in preparation for the UK leaving the EU without a deal:

Section 16(2) of the Value Added Tax Act 1994 (VATA) as amended by TCTA applies section 1(4) of VATA to VAT chargeable on the importation of goods under Part 1 of the TCTA for instance the VAT will be chargeable and payable as if it were import duty.

Schedules 3B and 3BA to VATA and Part 26 and 27 of the Value Added Tax Regulations 1995 (SI 1995/2518) (VAT Regulations 1995) contain the provisions for the VAT MOSS scheme that allow businesses that make supplies of digital services to account for VAT in their home country instead of registering in each EU country where the services are consumed. These Schedules will be repealed by the TCTA.

Regulations 28, 29(3), 32(3)(baa), 40(1)(ba), of the VAT Regulations 1995 contain provisions on how to account for, pay and record VAT.

Part 16 of the VAT Regulations 1995 contains provisions for the VAT treatment of import and export of goods.

Part 20 of the VAT Regulations 1995 contains provisions for the EU refunds scheme.

Regulations 71 and 83 of the Value Added Tax (Miscellaneous Amendments and Revocations) (EU Exit) Regulations 2019 (SI 2019/59) , regulations 2, 3 and 4 of the Taxation (Cross-border Trade) Act 2018 (Value Added Tax Transitional Provisions) (EU Exit) Regulations 2019 (SI 2019/105), regulations 5, 9, 10 and 15 of the Value Added Tax (Miscellaneous Amendments, Revocation and Transitional Provisions) (EU Exit) Regulations 2019 (SI 2019/513), Parts 4 and 5 of the Value Added Tax (Miscellaneous Amendments and Transitional Provisions) (EU Exit) Regulations 2019 (SI 2019/1214) contain saving and transitional provisions that are in consequence of, or in connection with, the UK’s exit from the EU.

Part 4 of the Value Added Tax (Place of Supply of Goods) Order 2004 (SI 2004/3148) contains provisions that prescribe the place of supply where goods are supplied through a chain of suppliers within the EU.

Council Implementing Decision (EU) 2018/1918 authorising the United Kingdom to apply a special measure derogating from Articles 16 and 168 of Directive 2006/112/EC on the common system of value added tax the Principal VAT Directive and Council Implementing Decision (EU) 2019/2230 of 19 December 2019 amending Decision 2007/884/EC authorising the United Kingdom to continue to apply a measure derogating from Articles 26(1)(a), 168 and 169 of the Principal VAT Directive give the UK permission to derogate from the Principal VAT Directive in relation to the application of road fuel scale charges (a simplification which applies a standard change to the need to apportion business or non-business use of fuel) and to restrict 50% of the VAT incurred on lease or hire cars to reflect business use. These decisions would otherwise be incorporated into domestic law as a result of section 3 of the European Union (Withdrawal) Act 2018 but are also time-limited.

The Value Added Tax (Postal Packets and Amendment) (EU Exit) Regulations 2018 (SI 2018/1376) implements the policy for postal packets that would have come into force if the UK had left the EU without a deal and the Data-gathering Powers (Relevant Data) (Amendment) (EU Exit) Regulations (SI 2019/1221) contain provisions to support the compliance approach for the policy.

Proposed revisions

This measure mandates that where a VAT registered business that makes a declaration using EIDR procedure in accordance with regulation 29C(4) of the Customs (Import Duty) (EU Exit) Regulations 2018 (not yet in force), it must account for the import VAT on its VAT return. It modifies the application of section 16(2) VATA and the Value Added Tax (Accounting Procedures for Import VAT for VAT Registered Persons and Amendment) (EU Exit) Regulations 2019 (not yet in force) for this purpose. It also provides the Commissioners for HM Revenue and Customs (HMRC) with a power to make provision relating to the payment of import VAT in a public notice where the person purports to make a transitional simplified customs declaration but does not.

This measure provides savings and transitional provisions in relation to Part 20 of the VAT Regulations 1995 which is to be omitted by regulation 71 of the Value Added Tax (Miscellaneous Amendments and Revocations) (EU Exit) Regulations 2019 (not yet in force). These provisions change the date of the withdrawal of the EU refund scheme from exit day to the end of the transition period. It also provides provisions for partial exemption adjustments for input tax attributions relating to EU refunds for the period from 1 January 2020 to the end of the transition period. It also provides the Commissioners for HMRC with a power to determine the form and manner for making a repayment to HMRC under the EU refund scheme where an amount needs to be repaid after the end of the transition period.

This measure provides a savings provision to continue the effect of Schedule 3B and 3BA to VATA and Parts 26 and 27 of the VAT Regulations 1995 in relation to the schemes for supplies of digital services made before the end of the transition period. Schedules 3B and 3BA and Parts 26 and 27 of the 1995 Regulations are omitted by paragraphs 86 and 87 of Schedule 8 to TCTA and regulations 79 and 80 of SI the Value Added Tax (Miscellaneous Amendments and Revocations) (EU Exit) Regulations 2019 respectively (the omissions are not yet in force). It also provides the Commissioners for HMRC with a power to set out modifications necessary to make sure the schemes operate as intended for supplies that have taken place before the end of the transition period, despite the closure of the schemes.

This measure makes consequential or technical amendments to VAT legislation laid in preparation for the UK exiting the EU without a deal.

This measure revokes two EU Council Implementing Decisions that would otherwise be incorporated into domestic law, the Value Added Tax (Postal Packets and Amendment) (EU Exit) Regulations 2018 and the Data-gathering Powers (Relevant Data) (Amendment) (EU Exit) Regulations 2019.

Summary of impacts

Exchequer impact (£million)

2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025	2025 to 2026

The Office for Budget Responsibility included the impact of EU exit in their Economic and fiscal outlook November 2020, this includes the impact of these provisions.

Economic impact

This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

This measure is not expected to have any impact on individuals. The measure introduces requirements in connection with staged customs controls (UK’s Border Operating Model) or agreed in the Withdrawal Agreement. There is not expected to be any impact on family formation, stability or breakdown.

Equalities impacts

It is not anticipated that there will be impacts for those in groups sharing protected characteristics.

Impact on business including civil society organisations

This measure is not expected to have any additional impact on businesses, including civil society organisations. This measure is in line with the UK’s Border Operating Model and the implementation of the Withdrawal Agreement, which is already part of UK law, and as such the impacts have already been considered.

Operational impact (£million) (HMRC or other)

This measure does not introduce any requirement beyond those in connection with stage customs controls (UK’s Border Operating Model) and what has already been agreed in the Withdrawal Agreement. There are no further operational costs for HMRC or other public bodies.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

This measure will be monitored through information collected from VAT returns and communication with affected taxpayer groups.

Further advice

If you have any questions about this change, please contact John Egerton at HMRC on Telephone: 03000 585703 or email: john.egerton@hmrc.gov.uk.

Declaration

The Right Honourable Jesse Norman MP, Financial Secretary to the Treasury, has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.