Policy paper

VAT (Miscellaneous Amendments and Repeals) (EU Exit) Regulations 2021 and VAT (Amendment) (EU Exit) Regulations 2021

Published 30 June 2021

Who is likely to be affected

Businesses that trade in or move goods to or from the United Kingdom.

General description of the measure

This document covers two statutory instruments (SIs) which address issues identified in a review of EU exit VAT legislation that was commenced at the end of the transition period (11pm on 31 December 2020) to make sure the UK VAT system operates as required and is consistent with the Withdrawal Agreement and the Protocol on Ireland and Northern Ireland (the Protocol). These are:

• the Value Added Tax (Miscellaneous Amendments and Repeals) (EU Exit) Regulations 2021
• the Value Added Tax (Amendment) (EU Exit) Regulations 2021

Policy objective

The statutory instruments covered by this document address issues identified as a result of a review of EU exit legislation to make sure the UK VAT system will continue to operate as required. This includes correcting errors and omissions and updating cross-references in secondary legislation. It also includes moving provisions relating to Northern Ireland that are currently in tertiary legislation into secondary legislation, as well as making more substantive changes.

Current legislation zero-rates the transport, handling and storage of imported and exported goods from the UK. The EU exit legislation contained a provision to the effect that the meaning of the term “import” included movements between Northern Ireland and Great Britain (England, Scotland and Wales). This extended the zero rate to the transport, handling and storage of goods moving between Great Britain and Northern Ireland. The measure removes the extension of the zero rate ensuring that the same VAT treatment applies for transport services provided in relation to goods moving between Great Britain and Northern Ireland as within Great Britain or within Northern Ireland.

VAT registered businesses that carry on both business and non-business activities can only recover VAT relating to their business activities. Before the end of the transition period, VAT was not chargeable when a business moved its own goods between Great Britain and Northern Ireland. However, under the Protocol, when a VAT registered business moves its own goods from Great Britain to Northern Ireland, the goods are subject to import VAT in Northern Ireland. For goods used wholly or partly for non-business purposes all or some of the VAT incurred would be irrecoverable, both at the time of purchase and on the movement to Northern Ireland. This would lead to double taxation representing a real cost to businesses.

The measure deems that the movement of a business’ own goods from Great Britain to Northern Ireland, that are wholly or partly used for non-business purposes, is treated as a zero-rated taxable supply. This is subject to the goods being removed within 12 months of when the business incurred VAT in Great Britain and allows full recovery of the VAT charged on the initial purchase of the goods.

The measure makes amendments to ensure the correct taxation of goods supplied from the EU to Great Britain that are transported through Northern Ireland. The measure extends the overseas goods provisions introduced into the Value Added Tax Act 1994 by the Taxation (Post-transition Period) Act 2020 to these indirect movements of goods. This ensures consistent treatment with goods that are moved directly from the EU to Great Britain.

The overseas goods provisions provide that goods ordered remotely and imported into Great Britain in consignments with an intrinsic value of £135 and under, are treated as supplied in the UK by the seller or (if the sale is facilitated by an online marketplace (OMP)) the operator of the online marketplace. For goods sent in consignments valued over £135, the measure makes the supplier liable to account for VAT due on the movement of goods from the EU to Great Britain through Northern Ireland and requires the supplier in these circumstances to register for VAT, if they are not already registered. This ensures consistent treatment with goods that are moved from Northern Ireland to Great Britain.

The measure repeals legislation relating to the policy for postal packets that would have come into force if the UK had left the EU without a deal. The legislation was brought into force to allow affected businesses to register in advance of EU exit, however, the policy will no longer be implemented, and subordinate legislation has already been revoked.

EU exit legislation introduced provisions to zero-rate handling services related to trains carried out in international train areas. The measure extends the zero rate to include handling services in relation to international trains, and goods transported, that are carried out elsewhere on the rail network.

The VAT margin scheme allows VAT registered businesses making supplies of second-hand goods, works of art, antiques and collectors’ items to opt to account for VAT on the profit margin achieved on the goods instead of the full value. The introduction of the overseas goods measure resulted in unintended interactions with the VAT margin scheme:

• the margin scheme does not apply to imported goods, however, the overseas goods measure changes the place of supply of relevant imported goods to the UK thereby making those goods eligible for the margin scheme
• before the end of the transition period, an overseas supplier selling goods located in the UK could use the margin scheme whether it sold those goods directly to consumers or through an online marketplace

However, under the overseas goods measure, where goods located in Great Britain are supplied by an overseas supplier and the sale is facilitated by an online marketplace the overseas supplier is deemed to have made a zero-rated supply to the operator of the online marketplace. The operator of the online marketplace is treated as making the ultimate supply to the consumer. The insertion of a deemed supply by the overseas supplier to the online marketplace creates administrative complexity in determining the profit margin on the goods

The measure will exclude both imported goods and goods located in the UK which are subject to the overseas goods measure from eligibility for the margin scheme.

EU exit legislation allows VAT registered businesses to opt to account for import VAT on their VAT return under postponed VAT accounting. The measure will provide that understatements or overstatements of import VAT can be corrected in line with the existing error corrections procedures for output tax.

As a consequence of EU exit the VAT return has been amended. The measure makes amendments to reflect these changes and provides a power for the Commissioners for HM Revenue and Customs (the Commissioners) to specify additional requirements in relation to the completion of the VAT return in a public notice. This removes the need to amend legislation if the return is updated in the future and clarification is needed on the content of boxes on the return.

Businesses selling goods between Great Britain and Northern Ireland are required to produce an import document which is the equivalent of a VAT invoice for other domestic sales. The measure adds further details that should be included on the import document to ensure consistency with the VAT invoicing rules. It also extends the requirement to produce an import document to EU suppliers sending goods to Great Britain through Northern Ireland.

Supplies of goods in the UK which are intended for export can be zero-rated, subject to certain conditions. This includes motor vehicles which are required to be removed within a certain timeframe (6 or 12 months). This treatment recognises the fact that the goods may be taxed when entering the purchaser’s home country. Under EU exit legislation these rules also apply to goods moved between Great Britain and Northern Ireland.

However, where goods are moved by individuals from Great Britain to Northern Ireland other EU exit legislation provides that any VAT paid in Great Britain is offset against the VAT due on the goods entering Northern Ireland. This means that the zero rate is not required in respect of such movements and this measure removes it. The change leaves consumers in the same position financially and removes a potential revenue risk.

The rules in Northern Ireland are governed by the Protocol and are mostly unchanged - the seller of the goods in Northern Ireland is required to account for VAT due when the goods enter Great Britain.

However, in the case of motor vehicles, the measure reduces the period in which the vehicle has to be moved to Great Britain to one month to align, as closely as is possible under the Protocol, with supplies of goods that do not move between Great Britain and Northern Ireland.

Supplies of goods moved between Great Britain and Northern Ireland are subject to VAT on arrival. The supplier is liable to account for the VAT due and VAT registered customers may recover the VAT charged, subject to the normal rules. This ensures alignment, as far as is possible under the Protocol, with domestic supplies of goods that do not move between Great Britain and Northern Ireland. The EU exit legislation makes clear that where the supply is to a VAT registered customer who can recover the VAT charged to them, the supplier cannot recover the VAT charged. This measure puts beyond doubt that there are no circumstances in which the supplier may recover this VAT.

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.

A review of the EU exit VAT legislation identified a number of errors, omissions and unintended interactions which need to be addressed. Given the time constraints some provisions which were more appropriate for secondary legislation were included in tertiary legislation.

These amendments are required to make sure the VAT system continues to operate as required and meets the obligations under the Withdrawal Agreement and the Protocol.

Detailed proposal

Operative date

The measure will come into effect on 1 August 2021.

Current law

The current law is contained in:

• the Value Added Tax (Terminal Markets) Order 1973 (SI 1973/173)
• the Value Added Tax (Imported Goods) Relief Order 1984 (SI 1984/746)
• the Value Added Tax (Cars) Order 1992 (SI 1992/3122)
• the Value Added Tax Act 1994 (VATA) (as amended by the Taxation (Cross-border Trade) Act 2018 and the Taxation (Post-transition Period) Act 2020 and associated EU exit secondary legislation).
• the Value Added Tax (Special Provisions) Order 1995 (SI 1995/1268)
• the Value Added Tax Regulations 1995 (SI 1995/2518) (VAT Regulations)
• the Value Added Tax (Removal of Gas, Electricity, Heat and Cooling) Order 2010 (SI 2010/2925)
• the Taxation (Cross-border Trade) Act 2018 (TCTA)
• the Value Added Tax (Accounting Procedures for Import VAT for VAT Registered Persons and Amendment) (EU Exit) Regulations 2019 (SI 2019/60)
• the Value Added Tax (Miscellaneous Amendments to the Value Added Tax Act 1994 and Revocation) (EU Exit) Regulations 2020 (SI 2020/1544)
• the Value Added Tax (Northern Ireland) (EU Exit) Regulations 2020 (SI 2020/1546)

Proposed revisions

The Value Added Tax (Miscellaneous Amendments and Repeals) (EU Exit) Regulations 2021

This measure amends item 5 and substitutes item 11 of group 8 of Schedule 8 to VATA to correct the inadvertent extension of the relief for transport services related to the import and export of goods.

A new paragraph 31B is inserted into Schedule 9ZB to VATA to provide that the removal of a business’ own goods, used wholly or partly for non-business purposes from Great Britain to Northern Ireland can, subject to certain conditions be treated as a zero-rated taxable supply of goods made in the course or furtherance of business.

Schedule 9ZB to VATA is amended to make a supplier liable to account for VAT due on goods from a member State entering Great Britain through Northern Ireland and to require the supplier in these circumstances to register for VAT, if not already registered. It also removes such goods from the VAT relief provided for qualifying Northern Ireland goods entering Great Britain. Qualifying Northern Ireland goods are goods that are in free circulation in Northern Ireland, so include goods that enter Northern Ireland from EU member states.

Part 1 of Schedule 9ZC to VATA is amended so that the VAT treatment of online sales by overseas persons and low value importations also applies to goods supplied from the EU to Great Britain where the movement of the goods is through Northern Ireland.

The measure omits section 16A of VATA and paragraph 14 of Schedule 8 to TCTA which inserted it. Section 16A provided the power to make regulations to impose a liability to import VAT on an overseas business sending goods to the UK in postal packets.

The measure corrects minor errors identified in Schedules 9ZA and 9ZB to VATA.

The Value Added Tax (Amendment) (EU Exit) Regulations 2021

A new Item 6ZB (and associated notes) is inserted into Group 8 of Schedule 8 to VATA to provide for the zero-rating of handling services provided anywhere on the UK rail network to international trains, and the goods they carry.

Article 12 of the Value Added Tax (Special Provisions) Order 1995 is amended to exclude from eligibility for the margin scheme goods treated as supplied in the UK as a result of section 7(5B) to VATA or treated as supplied by the operator of an online marketplace by virtue of section 5A(1)(c)(ii) to VATA.

Regulation 39 of the VAT Regulations is amended to reflect changes to the VAT Return following EU exit. It also provides a power for the Commissioners to specify additional requirements in relation to the completion of the VAT return in a public notice.

Part 16 of the VAT Regulations 1995 is amended to remove the zero-rate for cars sold in GB that are to be removed to Northern Ireland and to introduce new time limits in Part 16ZA for the removal of zero-rated cars from Northern Ireland to Great Britain. It also makes consequential amendments in relation to Great Britain.

Part 16ZA of VAT Regulations is amended to include provisions, currently in tertiary law, concerning the application of customs and excise legislation to import VAT in relation to Northern Ireland.

New regulation 7A is inserted into the Value Added Tax (Accounting Procedures for Import VAT for VAT Registered Persons and Amendment) (EU Exit) Regulations 2019 to provide that import VAT accounted for in accordance with those regulations, relating to importation of relevant goods on or after 1 July 2021, should in the event of an overstatement or understatement, be corrected in the manner prescribed for output tax by regulation 34 of the VAT Regulations.

Regulation 6A is inserted into the Value Added Tax (Northern Ireland) (EU Exit) Regulations 2020 to provide that where in the course of a removal from Great Britain to Northern Ireland goods are declared to a special customs procedure in an EU member State, the person who causes those goods to be released into free circulation is the person who is liable for VAT on the removal. Regulation 17 is amended to introduce a new requirement for an invoice (to be known as an import document) to be provided in certain circumstances and update the information that a taxable person must include in such a document. Regulation 21 is amended to prevent a supplier that is liable for VAT as a result of paragraph 4(3) of Schedule 9ZB to VATA on the movement of goods from Great Britain to Northern Ireland from recovering the VAT as input tax in all circumstances.

The Value Added Tax (Terminal Markets) Order 1973, the Value Added Tax (Cars) Order 1992, the VAT Regulations and the Value Added Tax (Removal of Gas, Electricity, Heat and Cooling) Order 2010 are amended to update cross-references to VAT legislation so that the references refer to the legislation as it now appears in Schedules 9ZA and 9ZB to VATA.

The Value Added Tax (Imported Goods) Relief Order 1984, the Value Added Tax Regulations 1995 and the Value Added Tax (Miscellaneous Amendments to the Value Added Tax Act 1994 and Revocation) (EU Exit) Regulations 2020 are amended to correct minor errors.

Minor and consequential amendments are made to the Value Added Tax (Northern Ireland) (EU Exit) Regulations 2020.

Summary of impacts

Exchequer impact (£m)

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

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

This measure is 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 (£m) (HMRC or other)

This measure carries 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

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 Shapi Masendu on 03000 593074 or email: shapi.masendu@hmrc.gov.uk.

Declaration

The Right Honourable Jesse Norman 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.