Policy paper

Value Added Tax (Enforcement Related to Distance Selling and Miscellaneous Amendments) Regulations 2022

Published 7 March 2022

Who is likely to be affected

Those that are likely to be affected are:

• businesses that make distance sales of goods between Northern Ireland and the European Union (EU) or import goods into Northern Ireland and the EU from non-EU countries, including Great Britain (England, Scotland and Wales)
• businesses involved in the import of goods into Northern Ireland from the rest of the world (RoW) via Great Britain
• businesses and individuals seeking repayment of overpaid import VAT in Great Britain and Northern Ireland

General description of the measure

This statutory instrument (SI) addresses issues identified in amendments made to the Value Added Tax Act 1994 (VATA) by the Finance Act 2021 to implement the VAT e-commerce package. The SI also amends legislation to remove the potential for double taxation of certain goods that move from the rest of the world to Northern Ireland via Great Britain. It also provides legal certainty for businesses and individuals in Great Britain and Northern Ireland for claiming a repayment of overpaid import VAT.

Additionally, the SI makes a minor amendment to remove the potential for ambiguity.

Policy objective

On 1 July 2021 the EU VAT e-commerce package was introduced and provided for 2 new simplified VAT accounting schemes: the One Stop Shop (OSS) and the Import One Stop Shop (IOSS).

Both accounting schemes are optional for businesses and are designed to reduce the administrative burdens of paying VAT on sales of goods and imports into Northern Ireland and the EU. The OSS scheme allows businesses established in Northern Ireland or the EU to both register and account for the VAT on supplies of goods to customers in Northern Ireland or the EU through one simplified system, where those supplies exceed the threshold of £8,818. The IOSS scheme is a simplified accounting scheme to be made available to those businesses who wish to use it to facilitate the collection of VAT on imports of non-excise goods in consignments valued up to £135 in value to customers in Northern Ireland and the EU.

When the OSS and IOSS schemes were provided for, existing legislation was amended to make sure that OSS and IOSS returns were included in the list of returns on which penalties for inaccuracies may be applied. The current wording only applies to returns submitted to HMRC and therefore excludes returns submitted in the EU for VAT on sales to Northern Ireland consumers. The measure amends legislation to make sure that penalties apply to all OSS and IOSS scheme users that make supplies in Northern Ireland whether registered in the UK or in the EU.

The measure also makes minor amendments to align the provision that currently applies to non-UK OSS and IOSS users with that which applies to UK OSS and IOSS users. These changes are in relation to penalties, interest, and adjustments to assessments and overpayments.

Where any import VAT paid on goods is no longer due, the person who has paid it is entitled to claim a repayment. Existing legislation provides both the right to, and mechanism for, the repayment of overpaid import VAT in Great Britain in the majority of cases. However, domestic legislation does not provide for:

• VAT registered businesses to be able to reclaim overpaid import VAT through their VAT return where they did not originally account for the import VAT on a return
• either the right to, or mechanism for, repayment of overpaid import VAT to businesses and individuals in Northern Ireland

The measure amends legislation to address these deficiencies and provides legal certainty in relation to repayment of overpaid import VAT.

There is the potential for 2 charges to import VAT to arise on goods sent in consignments valued above £135 (and consignments of any value containing excise and non-commercial goods) imported into Northern Ireland from rest of the world via Great Britain. Where rest of the world goods are imported directly into Northern Ireland, import VAT is chargeable when the goods are declared to Customs in Northern Ireland. However, in some cases goods are declared in Great Britain before they are transported to Northern Ireland which creates a charge to import VAT in Great Britain. Under the terms of the Protocol goods moved from Great Britain to Northern Ireland are subject to import VAT on entry to Northern Ireland, so under current VAT legislation, a second charge to VAT occurs when the goods enter Northern Ireland.

In practice the second charge to import VAT in Northern Ireland is not levied because the goods are either moved without a declaration (through a declaration waiver) or are declared as domestic goods. However, to address the potential for double taxation on these goods this measure introduces a provision to offset any import VAT paid in Great Britain against the VAT due on the goods on entry to Northern Ireland. The measure also provides a power for the Commissioners for HM Revenue and Customs (the Commissioners) to specify how any amount of VAT in Northern Ireland, which exceeds the amount of credit, must be accounted for and paid in a public notice.

It also makes a minor amendment to legislation to make sure clarity for the reader.

Background to the measure

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

Together, these amendments provide legal certainty and to make sure that the VAT system operates as required and intended.

Detailed proposal

Operative date

The measure will come into effect on 1 April 2022.

Current law

The current law is contained in:

• Section 40A and Schedules 9ZB, 9ZD, 9ZE and 9ZF to the Value Added Tax Act 1994 (VATA)
• The Value Added Tax Regulations 1995 (SI 1995/2518) (The VAT Regulations)
• The Customs (Import Duty) (EU Exit) Regulations 2018 (SI 2018/1248) (The Import Duty Regulations)
• The Value Added Tax (Northern Ireland) (EU Exit) Regulations 2020 (SI 2020/1546)

Proposed revisions

E-commerce Changes

Amendments are made to Schedule 9ZD to VATA.

Paragraph 1(b) and (c) is amended to make sure consistency with the wider e-commerce legislation.

A new paragraph 15A is inserted to make sure that OSS businesses who are also registered for VAT in the UK do not have to account for a VAT obligation on their VAT return if that obligation arises in respect of an OSS scheme supply treated as made in Northern Ireland.

Paragraph 22 is amended to make sure rules for assessment concerning VAT credit apply to all OSS businesses making supplies in Northern Ireland in the same way as they do to UK VAT registered businesses.

Paragraph 25 is amended to make sure rules concerning the amendment of relevant OSS returns apply to UK OSS businesses in the same way as they do to non-UK OSS businesses.

Paragraph 26 is amended to make sure the rules for determining the reckonable date for the calculation of interest on assessments of UK OSS businesses apply in the same way as they do to non-UK OSS businesses.

Paragraph 27 is amended to make sure rules concerning default surcharge apply to UK OSS businesses in the same way as they do to non-UK OSS businesses.

Paragraph 28 is amended to make sure rules concerning further default after service of a notice apply to UK OSS businesses in the same way as they do to non-UK OSS businesses.

Paragraph 29 is amended to make sure rules concerning exceptions for reasonable excuse for default surcharge apply to UK OSS businesses in the same way as they do to non-UK OSS businesses.

Paragraph 30 is amended to make sure rules concerning interest paid in certain cases of official error apply to UK OSS businesses in the same way as they do to non-UK OSS businesses.

Paragraph 33 is substituted to make sure the rules on adjustments following an increase or decrease in consideration apply equally to UK OSS businesses as they do to non-UK OSS businesses.

Amendments are made to Schedule 9ZE to VATA.

Paragraph 16 is amended to make sure that the assessment rules concerning VAT credit apply to all IOSS businesses importing goods into Northern Ireland in the same way as they do to UK VAT registered businesses.

The heading of paragraph 19 is amended to make it clear that it applies to all IOSS scheme returns and not just non-UK IOSS scheme returns.

Paragraph 20 is amended to make sure rules for determining the reckonable date for the calculation of interest on assessment applies to all IOSS scheme returns and not just non-UK IOSS scheme returns.

Paragraph 21 is amended to make sure rules concerning default surcharge apply to UK IOSS businesses in the same way as they do to non-UK IOSS businesses.

Paragraph 22 is amended to make sure rules concerning further default after service of a notice apply to UK IOSS businesses in the same way as they do to non-UK IOSS businesses.

Paragraph 23 is amended to make sure rules concerning exceptions for reasonable excuse for default surcharge apply to UK IOSS businesses in the same way as they do to non-UK IOSS businesses.

Paragraph 24 make sure rules concerning interest paid in certain cases of official error applies to all IOSS scheme returns and not just non-UK IOSS scheme returns.

Amendments are made to Schedule 9ZF to VATA.

Paragraph 5 is substituted to make sure that reference to output tax when determining whether there is credit for, or a repayment of, overstated or overpaid VAT, includes VAT paid under the OSS and IOSS schemes.

A new paragraph 8A is inserted to make sure that a VAT credit for which HMRC may require a security for protection of the revenue includes VAT paid under the OSS and IOSS schemes.

Paragraph 9 is amended to correct a minor error, and new sub-paragraph (4A) is inserted to make sure that the date a non-UK OSS or IOSS return is submitted in a relevant EU member state is also regarded as the date it is given to HMRC.

Other Changes

A new regulation 121E is inserted into the VAT Regulations to provide that, where a person that is registered, or required to be registered, for VAT in Great Britain has not accounted for import VAT on the VAT return, and the import VAT has been overpaid, the repayment can be claimed on the VAT return.

New regulations 133AN, 133AO and 133AP are inserted into the VAT Regulations. Regulation 133AN sets out when a person in Northern Ireland is entitled to a repayment of overpaid import VAT for the purposes of new regulations 133AO and 133AP.

Regulation 133AO provides that where a person that is not registered, or required to be registered, for VAT or a person acting on behalf of that person, has overpaid import VAT they may make an application for a repayment of the import VAT as if they fall within the Import Duty Regulations. Regulation 133AP replicates the provisions in new regulation 121E for a person that is registered, or required to be registered, for VAT in Northern Ireland.

Paragraph (1) of regulation 133E of the VAT Regulations is substituted to remove the potential for ambiguity created by a previous amendment by regulation 45 of the Value Added Tax (Amendment) (EU Exit) Regulations 2021 (SI 2021/715).

A new regulation 19A is inserted into the Value Added Tax (Northern Ireland) (EU Exit) Regulations 2020. The regulation provides that, subject to certain conditions being met, a credit is provided for import VAT paid on goods when they are imported into Great Britain when those goods are moved to Northern Ireland for delivery there. It also provides a power for the Commissioners to specify how any amount of VAT in Northern Ireland, which exceeds the amount of credit, must be accounted for and paid in a public notice.

Summary of impacts

Exchequer impact (£million)

2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025	2025 to 2026	2026 to 2027
Nil	Nil	Nil	Nil	Nil	Nil

The measure is not expected to have an Exchequer impact.

Economic impact

The measure is not expected to have any significant economic impacts.

Impact on individuals, households and families

There is expected to be no impact on individuals. The measure provides legal certainty for individuals (and businesses) of the entitlement to, and mechanism for, the repayment of overpaid import VAT. Individuals that are entitled to make a claim will continue to follow the existing established process.

There is expected to be no 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.

A full equality impact assessment is not recommended

Impact on business including civil society organisations

The measure is expected to have a negligible impact on businesses and civil society organisations as it merely seeks make sure that the VAT system operates as required. Not addressing these issues could result in uncertainty for businesses and the inability to apply sanctions to defaulting businesses accounting for UK VAT in the OSS and IOSS schemes administered in EU member states.

One-off costs will include familiarisation with the rules to make sure businesses are compliant. There are not expected to be any further one off or continuing costs. Customer experience of dealing with HMRC as a result of this measure is expected to remain broadly the same as the changes do not change any processes or tax administration obligations.

Operational impact (£million) (HMRC or other)

It is not anticipated that implementing this change will incur any additional costs/savings for HMRC.

Other impacts

Other impacts have been considered and none has been identified.

Monitoring and evaluation

The measure will be kept under review through communication with affected taxpayer groups.

Further advice

If you have any questions about this change, contact Shapi Masendu by email: shapi.masendu@hmrc.gov.uk.

Declaration

The Right Honourable Lucy Frazer QC MP, the 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.