Policy paper

VAT (Miscellaneous Amendments to Acts of Parliament) (EU Exit) Regulations 2020

Published 19 November 2020

Who is likely to be affected

Businesses involved in the handling of international trains and qualifying aircraft (typically aircraft for an airline that chiefly flies on international routes) and those involved in the handling and storage of goods carried within them.

Also, businesses who provide pension fund management services to pension funds established in the European Union (EU).

General description of the measure

The changes in this instrument are as a result of the UK’s departure from the EU and will apply from the end of the transition period (11pm on 31 December 2020) as agreed by the UK and the EU in the EU Withdrawal Agreement.

This instrument makes sure that the VAT zero-rate that applies at airports for the handling of qualifying aircraft and the handling and storage of goods that they carry continues to apply and introduces a similar VAT zero-rate for international trains.

Additionally, it removes the VAT exemption for pension fund management services for pension funds established in the EU as announced as part of the changes made in the Value Added Tax (Finance) Order 2020 which started on 1 April 2020.

Finally, it removes planned changes to the scope of the VAT zero-rate to certain designated travel services which were never started and which are no longer needed as they were superseded in subsequent legislation.

Policy objective

These regulations make sure that supplies of the handling of qualifying aircraft and the handling and storage of goods carried by them continue to be VAT zero-rated.

Currently UK legislation only provides for this relief in respect of qualifying aircraft and goods handled at customs and excise airports. However, by placing reliance on direct effect of European legislation, such supplies are also VAT zero-rated when provided at non-customs and excise airports. This measure puts the issue beyond doubt in UK legislation.

This measure also makes sure that the VAT zero-rate applies to the handling of international trains and the handling and storage of goods carried in them in the same way as in ships and qualifying aircraft.

Additionally, this measure makes sure that the VAT exemption for pension fund management services only applies to funds established in the UK and funds established in the EU are to be treated in the same way as those based elsewhere in the rest of the world.

Finally, this measure removes a provision in the Taxation (Cross-border Trade) Act 2018 that has not been started. The provision has subsequently been superseded by changes in the Value Added Tax (Tour Operators) (Amendment) (EU Exit) Regulations 2019.

Background to the measure

There has been no prior announcement of the changes to the handling of qualifying aircraft and the handling and storage of goods carried in them at non-customs and excise airports since this measure simply retains the current VAT treatment. There has also been no prior announcement of the introduction of the similar VAT zero-rate for international trains as this relief is consistent with that for ships and qualifying aircraft.

Following a decision of the European Court of Justice in 2014 and subsequent consultation with affected businesses in the finance sector, changes were made to apply the VAT exemption to pension fund management services with effect from 1 April 2020.

Previously UK business had been able to apply the VAT exemption by reliance on direct effect of EU legislation. Until the end of the transition period, the same treatment applies to management services for UK and EU established pension funds. This current change therefore removes the VAT exemption for management services supplied to EU established pension funds. Going forward the VAT exemption will only apply to pension fund management services for pension funds established in the UK.

This measure also removes an amendment made at paragraph 94(4)(c) of Schedule 8 of the Taxation (Cross-border Trade) Act 2018 where changes were made to the scope of the zero-rate of certain designated travel services. This provision has not been started and is now no longer needed. Instead a different approach was taken to these travel services in the Value Added Tax (Tour Operators) (Amendment) (EU Exit) Regulations 2019. This affirmative Statutory Instrument was subject to debate in Committee.

Detailed proposal

Operative date

The provisions in this Statutory Instrument will come into effect by way of further regulations appointing a specified day. It is expected that the appointed day for the amendments to the Value Added Tax Act 1994 will come into force at the end of the transition period, that is, 11pm on 31 December 2020.

Current law

The VAT zero-rate for the handing of qualifying aircraft and the handling and storage of goods carried on them is in Group 8 of Schedule 8 to the Value Added Tax Act 1994. There is no current relief for international trains.

The VAT exemption for pension fund management is in Group 5 of Schedule 9 of the Value Added Tax Act 1994.

The legislation being removed in respect of certain designated travel services which has never been started and no longer needed, is at paragraph 94(4)(c) of the Taxation (Cross-border Trade) Act 2018.

Proposed revisions

Legislation will be introduced by a single affirmative procedure Statutory Instrument to amend Group 8 of Schedule 8 of the VAT Act 1994 to add international trains to the list which includes ships and aircraft and provides a VAT zero-rate for the handling of these types of transportation and also the handling and storage of goods carried by them.

The legislation also introduces a new Note to Group 8 which allows for the VAT zero-rate to apply to qualifying aircraft that operate out of non-customs and excise airports.

The legislation removes a qualifying pension fund that is established in the EU from the VAT exemption in Group 5 of Schedule 9 to the VAT Act 1994.

The legislation removes legislation that has never been started and no longer needed at paragraph 94(4)(c) of the Taxation (Cross-border Trade) Act 2018.

Summary of impacts

Exchequer impact (£million)

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

This measure is not expected to have an Exchequer impact.

Economic impact

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

Impact on individuals, households and families

This measure is not expected to impact individuals as it only affects businesses. There is 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.

Impact on business including civil society organisations

This measure is expected to have a negligible impact on businesses involved in the handling of international trains and qualifying aircraft and those involved in the handling and storage of goods carried within them. This measure is also expected to have a negligible impact on businesses who provide pension fund management services to pension funds established in the EU.

Those businesses that handle qualifying aircraft and handle and store goods carried on them from non-customs and excise airports will be able to carry on applying the zero-rate as they do now.

Those businesses that handle international trains and handle and store goods carried on them will now apply a VAT zero-rate to their supplies. There will be one-off costs related to familiarisation with the new process and amending their systems to reflect the zero-rate. There will be no continuous costs associated with this change for suppliers. Train companies will see no change to what they currently do.

Those businesses providing pension fund management services will see no change to what they do as a result of this measure.

No businesses will be impacted by the removal of the legislation that has not started and is no longer needed in respect of certain designated travel services. Replacement legislation was laid in the Value Added Tax (Tour Operators) (Amendment) (EU Exit) Regulations 2019 and any impacts were determined there.

There is no impact on civil society organisations.

This measure is expected overall to have no impact on businesses or individuals experience of dealing with HMRC as the change is not expected to change any processes.

Guidance on the change will be published on www.gov.uk.

Operational impact (£million) (HMRC or other)

There are no operational costs or impacts.

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.