Policy paper

VAT (Distance Selling and Miscellaneous Amendments) Regulations 2021 and VAT (Distance Selling and Miscellaneous Amendments No.2) Regulations 2021

Published 27 October 2021

Who is likely to be affected

Businesses that make distance sales of goods within the European Union (EU) and Northern Ireland, or imports into Northern Ireland or the EU while registered for either the One Stop Shop (OSS) or the Import One Stop Shop (IOSS) simplified Value Added Tax (VAT) accounting schemes.

The measure also affects businesses trading between Great Britain (England, Scotland and Wales) and Northern Ireland, businesses that have incurred VAT on goods in the Isle of Man which are then removed to Northern Ireland, and those that import goods into Northern Ireland under a customs special procedure.

General description of the measure

This document covers 2 statutory instruments (SIs):

• VAT (Distance Selling and Miscellaneous Amendments) Regulations 2021 (SI 2021/1164) which is subject to the negative procedure (the negative SI)
• VAT (Distance Selling and Miscellaneous Amendments No.2) Regulations 2021 (SI 2021/1165) which is subject to the made affirmative procedure (the affirmative SI)

These statutory instruments address issues identified in legislation laid in the Finance Act 2021 to implement 2 VAT simplified accounting schemes (OSS and IOSS) a key part of what is referred to as the e-commerce package.

Additionally, the statutory instruments make a number of minor amendments identified in a review of EU exit VAT legislation. The changes make sure the United Kingdom (UK) VAT system operates as required and intended.

Together, these instruments make a number of consequential and otherwise necessary amendments to make sure that VAT changes already made as part of the e-commerce package and in relation to EU exit work as originally intended.

Policy objective

The Finance Act 2021 introduced the rules concerning 2 simplified VAT accounting schemes. From 1 July 2021, the optional OSS scheme allows businesses, where their annual total supplies of goods to final consumers based in EU member states or Northern Ireland exceeds £8,818, to register in just one EU member state or Northern Ireland and account for VAT on all their sales of goods on a single quarterly VAT return. The alternative is for businesses to register for VAT in each EU member state they make supplies in.

The optional IOSS scheme allows businesses that import low value goods in consignments worth up to £135 into the EU or Northern Ireland to register and account for the VAT in one-EU member state or Northern Ireland on a single return without any import VAT being charged at the point of importation. The alternative is for businesses to account for import VAT in each country they import goods into.

A review of the OSS and IOSS legislation before it taking effect identified a number of minor errors and omissions. These issues were addressed in the Finance Act 2021, Section 95 and Schedule 18 (Distance Selling: Northern Ireland) (Appointed Day No. 1 and Transitory Provision) Regulations 2021 (SI 2021/770) and came into effect on 1 July 2021. However, that instrument was a ‘no procedure’ SI (neither affirmative nor negative) and could only apply these changes for transitory purposes. In the absence of a permanent change, the minor error provisions would expire on 1 January 2022 and the IOSS interim procedure power would expire on 1 April 2022. These statutory instruments make those transitory changes permanent. In addition, other minor amendments are made to the OSS and IOSS legislation to improve clarity.

Other amendments included in the statutory instruments arise from a review of EU exit legislation.

The affirmative SI

This SI makes sure that all OSS scheme businesses registered in the UK can trade in goods with EU member states by having the status of a person ‘who is identified for the purposes of VAT in Northern Ireland’. It also addresses one of the transitory changes identified above, which relates to using consistent terminology when distinguishing between businesses that will, in the future, be able to register for the IOSS scheme in the UK and those that register for the IOSS scheme in an EU member state.

This SI removes some superfluous legislation that states Great Britain is a third country or territory. This SI also aligns terminology used elsewhere in the same VAT Schedule (9ZD to the Value Added Tax Act 1994) that a person who is registered for OSS in an EU member state is a ‘participant in a non-UK scheme’.

This SI also clarifies that references to Great Britain include references to the Isle of Man and corrects a cross reference in respect of the recovery of VAT in respect of the DIY Housebuilder Scheme.

The negative SI

This SI addresses the remaining transitory changes identified above, which includes using consistent terminology when distinguishing between businesses that will, in the future, be able to register for the IOSS scheme in the United Kingdom and those that register for the IOSS scheme in an EU member state. In addition, before a business registered for IOSS can get relief from VAT when importing its goods into Northern Ireland (which is a key part of the IOSS scheme), it needs to tell HMRC. Pending development of HMRC’s IOSS IT systems, a power was required to provide for interim procedures for notification in a notice.

This SI also clarifies the position in UK legislation in relation to ‘obligatory records’ (which means records kept in accordance with an obligation imposed in accordance with the relevant part of the EU VAT Directive) to put beyond doubt in UK legislation that there is an obligation to keep records in respect of OSS and IOSS supplies treated as made in the UK, whether the business is registered for the relevant scheme in the UK or in an EU member state.

This SI makes sure that for the purposes of the OSS and IOSS schemes, Isle of Man is treated in the same way as Great Britain. That means that, for instance, an Isle of Man business that holds goods in Northern Ireland can register for OSS and make supplies to consumers in EU member states in exactly the same way as business in Great Britain can and which is otherwise in the same position. While it is implied that reference to Great Britain in this context include references to Isle of Man, changes here put the issue beyond doubt.

This SI also addresses potential double taxation. The Value Added Tax (Northern Ireland) (EU Exit) Regulations 2020 (SI 2020/1546) introduced legislation to allow the offsetting of VAT incurred on goods in Great Britain against import VAT charged on the movement of those goods to Northern Ireland. Goods which have been subject to VAT in Isle of Man and then removed to Northern Ireland should be treated in the same way. While it is implied that reference to Great Britain in this context include references to Isle of Man, this SI puts the issue beyond doubt.

This SI also addresses an issue with goods that are moved between Great Britain and Northern Ireland, or vice versa, in a customs special procedure (for example, customs transit procedure). For example, it may not have been clear who is to be treated as the importer in the event of a breach of a customs special procedure and this measure makes clear who, in each case relevant to the circumstances described, is to be treated as the importer.

Finally, this SI makes minor amendments to the Value Added Tax Regulations 1995 (SI 1995/2518), the Value Added Tax (Imported Goods) Relief Order 1984 (SI 1984/746), the Value Added Tax (Treatment of Transactions) Order 1995 (SI 1995/958) and the Value Added Tax (Special Provisions) Order 1995 (SI 1995/1268) to remove a regulation that has no effect and to deal with a small number of minor drafting errors in 2 SIs laid on 21 December 2020 in connection with EU exit. These SIs are:

• Value Added Tax (Miscellaneous Amendments to the Value Added Tax Act 1994 and Revocation) (EU Exit) Regulations 2020 (SI 2020/1544)
• Value Added Tax (Miscellaneous Amendments, Northern Ireland Protocol and Savings and Transitional Provisions) (EU Exit) Regulations 2020 (SI 2020/1545)

Background to the measure

The e-commerce package was introduced with effect from 1 July 2021. This consists of, amongst other things, 2 VAT simplification schemes for distance sales that the UK implemented as part of the Northern Ireland Protocol.

For the remaining changes, the UK left the EU on 31 January 2020 and the transition period after EU exit ended at 11pm on 31 December 2020. A review of the EU exit VAT legislation has identified issues which need to be addressed.

Together, these amendments are required to make sure that the VAT system continues to operate as required and meets the obligations under the Withdrawal Agreement and the Northern Ireland Protocol.

Detailed proposal

Operative date

The measures will come into effect on 1 December 2021.

Current law

The current law for e-commerce is in:

• Schedules 9ZD, 9ZE and 9ZF to VATA as amended by sections 95 and 96 and in Schedule 18 of the Finance Act 2021
• The Finance Act 2021, Section 95 and Schedule 18 (Distance Selling: Northern Ireland) (Appointed Day No. 1 and Transitory Provision) Regulations 2021 (SI 2021/770)

The law for the other changes are in:

• Taxation (Cross-border Trade) Act 2018
• Taxation (Post-transition Period) Act 2020
• Value Added Tax (Imported Goods) Relief Order 1984 (SI 1984/746)
• Value Added Tax (Treatment of Transactions) Order 1995 (SI 1995/958)
• Value Added Tax (Special Provisions) Order 1995 (SI 1995/1268)
• Value Added Tax Regulations 1995 (SI 1995/2518)
• The Value Added Tax (Northern Ireland) (EU Exit) regulations 2020 (SI 2020/1546)

Proposed revisions

The Value Added Tax (Distance Selling and Miscellaneous Amendments No.2) Regulations 2021 (the affirmative SI)

This instrument makes a number of amendments to Schedule 9ZA to the Value Added Tax Act 1994 (VATA). It amends paragraph 7(3) by adding a new sub-paragraph to provide that any person registered for the OSS scheme can be ‘a person identified for the purposes of VAT in Northern Ireland’. This is necessary to be able to trade in goods with the EU. This change makes sure those who are not registered for VAT but are registered for OSS meets this requirement.

Changes are made to paragraph 18A(2) to correct a cross-reference error in respect of VAT recovery under the DIY Housebuilder Scheme and in paragraph 48(8), to remove references to Great Britain being a third country or territory which are unnecessary in the context.

This instrument makes an amendment to paragraph 29(1)(c) of Schedule 9ZB to VATA to make a consequential change to describe a person who is registered for the OSS scheme in an EU member state as ‘a participant in’ a non-UK scheme. This brings it into line with the same terminology used in Schedule 9ZD to VATA.

Changes are made to section 5B inserted by paragraph 1B of Schedule 9ZC to VATA. Subsections 1(c), (3) and (4) to section 5B have been amended to use consistent terminology when distinguishing between businesses that will, in the future, be able to register for the IOSS scheme in the UK and those that register for the IOSS scheme in an EU member state. Changes to subsections (4) and (6) have also been made to clarify that references to Great Britain include references to Isle of Man.

The Value Added Tax (Distance Selling and Miscellaneous Amendments) Regulations 2021 (the negative SI)

This instrument makes a number of amendments to Schedule 9ZD to VATA. It amends paragraph 2 to remove references to Great Britain being a third country or territory which are unnecessary in the context. In para 4(3) it removes a superfluous reference. In paragraph 10(3) it clarifies how the gross amount of VAT due is to be calculated under the OSS scheme and paragraph 14 and new paragraph 21A make provision that records must be kept for the OSS scheme whether the person is registered for the scheme in the UK or in an EU member state.

This instrument makes a number of amendments to Schedule 9ZE to VATA. It omits paragraph 10(5) and provides instead for new paragraph 36A to clarify that VAT is not chargeable on a supply of goods made in the UK if the person making that supply is not, nor liable to be, registered for VAT under Schedule 1 to VATA.

It also amends paragraphs 14(1), 37(1)(b), 38(2)(c), 39(3), 39(5), 41(1) and 43(1) and together with paragraph 7 of Schedule 9ZF to VATA, to clarify that any reference to the IOSS scheme applies to any qualifying participant of the IOSS scheme and not just those who will be registered for IOSS in the UK. This instrument further amends paragraph 14 and provides for new paragraph 30A to clarify that records must be kept for the IOSS scheme whether the person is registered for the scheme in the UK or in an EU member state. Paragraph 34(3) of Schedule 9ZE to VATA is amended to correct a minor error to avoid confusion and paragraph 37 is amended to clarify that the reference to Great Britain includes the Isle of Man and to correct minor errors.

Paragraph 37 is also amended to insert a power for the Commissioners for HMRC to make provision in a notice for the procedures to be followed by IOSS businesses importing goods into Northern Ireland qualify from exemption from import VAT. This power currently exists as a transitory provision and this change makes it permanent.

This instrument makes a number of amendments to Schedule 9ZF to VATA. It provides for paragraph 1A which amends section 3 of VATA to provide that being registered for either the OSS or IOSS schemes does not mean being registered for VAT under VATA. Paragraph 2 omits parts of section 4 of VATA which are now unnecessary because of the change made by paragraph 1A.

This instrument provides for a number of minor and consequential amendments to secondary legislation in relation to VAT. In the Value Added Tax Regulations 1995, it omits regulation 133AD(c) as this no longer applies and corrects a drafting error in regulation 133B(3). It also provides for a number of minor amendments to the Value Added Tax (Imported Goods) Relief Order 1984 (SI 1984/746), the Value Added Tax (Treatment of Transactions) Order 1995 (SI 1995/958) and the Value Added Tax (Special Provisions) Order 1995 (SI 1995/1268) to correct minor errors.

This instrument provides for a number of changes to the Value Added Tax (Northern Ireland) (EU Exit) Regulations 2020 (SI 2020/1546). It addresses a number of minor and consequential drafting errors and makes provision to clarify who is to be treated as the importer in circumstances where goods are removed from Great Britain to Northern Ireland, or vice versa, and then declared to a special customs procedure. This instrument provides that references to Great Britain equally apply to Isle of Man for credit for VAT paid against import VAT on movement of those goods into Northern Ireland.

This instrument withdraws all transitory provisions in the Finance Act 2021, Section 95 and Schedule 18 (Distance Selling: Northern Ireland) (Appointed Day No. 1 and Transitory Provision) Regulations 2021 (SI 2021/770 C. 41) which are made permanent by changes in this instrument. It also provides a savings provision in respect of those provisions.

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

These measures are not expected to have an Exchequer impact.

Economic impact

These measures are not expected to have any significant economic impacts.

Impact on individuals, households and families

It is not anticipated that these measures will have any impact on individuals, households or families as they only affect businesses. The measures are not expected to 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

The measures are expected to have a negligible impact on businesses and civil society organisations as it merely seeks to clarify and correct existing legislation.

One-off costs will include familiarisation with the rules to make sure they are compliant. There are not expected to be any 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)

These measures carry no costs to HMRC, whether IT, estates, staff resource or other costs.

Other impacts

Other impacts have been considered and none has been identified.

Monitoring and evaluation

These measures will be kept under review through communication with affected taxpayer groups.

Further advice

If you have any questions about this change, contact John Egerton on 03000 585703 or email: john.egerton@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.