Exiting the European Union (Value Added Tax)
(3 years, 9 months ago)
Commons ChamberRead Hansard Text Read Debate Ministerial Extracts
The Financial Secretary to the Treasury (Jesse Norman)
I beg to move,
That the Value Added Tax (Miscellaneous Amendments to Acts of Parliament) (EU Exit) Regulations 2020 (S.I., 2020, No. 1312), dated 18 November 2020, a copy of which was laid before this House on 19 November, be approved.
Mr Speaker
With this we will take the following motion:
That the Value Added Tax (Miscellaneous Amendments to the Value Added Tax Act 1994 and Revocation) (EU Exit) Regulations 2020 (S.I., 2020, No. 1544), dated 18 December 2020, a copy of which was laid before this House on 21 December, be approved.
Jesse Norman
These two statutory instruments are part of a package of measures connected to the UK’s exit from the EU. They make a number of consequential and necessary changes in order to ensure that the VAT system continued and continues to operate, as required, following the end of the transition period. They have been designed to ensure fairness, to protect against double taxation and avoidance, and to make certain that existing reliefs continue to apply following the UK’s departure from the EU. Both instruments took effect at the end of the transition period.
The Value Added Tax (Miscellaneous Amendments to Acts of Parliament) (EU Exit) Regulations 2020 make three changes to the VAT Act 1994 and one change to the Taxation (Cross-border Trade) Act 2018. The first change applies to the VAT treatment of aircraft handling services. Until the end of the transition period, the VAT Act included a VAT zero rate for handling services supplied to aircraft operating on international routes. These included landing and housing fees, security and fire services. This zero-rate band also applied to the handling and storage of goods carried in those aircraft, but only at a customs and excise airport. However, suppliers could previously rely on EU legislation to zero-rate their services at non-customs and excise airports. This instrument therefore provides for the continued application of the relief in UK legislation following the end of the transition period.
Secondly, this instrument includes a new VAT zero rate for the handling services supplied to international trains. These include network track access, shunting and storage, station and guard services, light maintenance services and the handling and storage of goods carried on the trains. The measure aligns the VAT treatment of international trains with that of qualifying ships and aircraft. For ships and aircraft, services for which the zero rate applies can be carried out only at a port or airport, but for international trains these services could be supplied at various other sites along a rail route. The instrument therefore provides a power for the Revenue and Customs commissioners to specify those sites in a notice. That will ensure that the relief applies appropriately to trains.
Thirdly, the instrument makes a change that allows those supplying pension fund management services to funds established in the EU to recover the VAT that they incur.
Finally, the instrument removes a change made in the Taxation (Cross-border Trade) Act 2018 to the VAT treatment of certain travel services. The change is no longer necessary because the subsequent Value Added Tax (Tour Operators) (Amendment) (EU Exit) Regulations 2019 included a revision of the VAT treatment of such services.
Let me turn to the second instrument to be debated: the Value Added Tax (Miscellaneous Amendments to the Value Added Tax Act 1994 and Revocation) (EU Exit) Regulations 2020. This legislation includes four changes to the Value Added Tax Act 1994 and the revocation of an instrument laid in 2019 in connection with EU exit.
First, the legislation makes changes to the DIY house builders’ scheme to place self-builders in Northern Ireland in the same position as those in Great Britain. The DIY house builders’ scheme allows people who construct their own dwellings—a relevant residential or charitable building—or make a residential conversion to claim back the VAT on certain building materials, including VAT incurred on imports. Under the Northern Ireland protocol, materials bought by self-builders in Northern Ireland from suppliers in an EU member state may be subject to VAT in Northern Ireland. The instrument ensures that a DIY house builder in Northern Ireland can recover VAT charged on materials bought from a supplier in an EU member state.
Secondly, the instrument allows HMRC to obtain information in relation to VAT owed by businesses and individuals in member states. Similar legislation applied to the whole of the UK until the end of the transition period, reflecting the requirement for mutual co-operation between member states in connection with VAT. The retention of the legislation, particularly in respect of Northern Ireland, is a requirement of the withdrawal agreement.
Thirdly, the instrument contains measures to prevent unscrupulous businesses from avoiding import VAT. Under the Government’s commitment to unfettered access, goods in free circulation in Northern Ireland that are moved to Great Britain are relieved from duty and VAT on entry. However, UK customs legislation contains a provision to remove the duty relief if it is found that goods have been routed from an EU member state via Northern Ireland to Great Britain in order to avoid import duty. The instrument ensures that, if the customs provision is triggered, the VAT relief will no longer apply as well. It also prevents double taxation for businesses that make exempt supplies and move goods from Great Britain to Northern Ireland.
Finally, the instrument revokes the Finance Act 2011, Schedule 23 (Data-gathering Powers) (Amendment) (EU Exit) Regulations 2019, which were laid in the event of a no-deal scenario and are therefore no longer required.
The instruments provide a number of significant and necessary changes to ensure that the VAT system continues to operate as required following the end of the transition period. They will ensure fairness, protect against double taxation and avoidance, and make certain that existing reliefs continue to apply. I hope colleagues will join me in supporting this legislation, which I commend to the House.
James Murray (Ealing North) (Lab/Co-op) [V]
I am grateful for the opportunity to respond on behalf of the Opposition to these two statutory instruments. Our priority, as the Opposition, is to ensure that the UK economy functions as smoothly as possible and that the Northern Ireland protocol operates effectively following the end EU exit transition period. We will therefore not oppose the Government on these two statutory instruments.
As we have heard, the first of these sets of regulations includes changes to replicate in domestic law the measures that currently exist in EU law. They make provision in UK law for a VAT zero rate for the handling of qualifying aircraft at non-customs and excise airports, as businesses can no longer rely on EU law to provide that measure. Other measures in this set of regulations make more substantive changes. The introduction of a VAT zero rate for the handling of international trains is new, although in practice it is similar to the relief for aircraft. The removal of a VAT exemption for suppliers of pension fund management services for funds established in the EU is also substantive, although it was predicted when the VAT exemption for pension fund management services was introduced in UK law last year.
As those two points represent substantial changes, will the Minister say what assessment the Treasury has made of the impact on the tax base of these regulations? On the one hand, there will presumably be a loss of revenue as a result of the zero rating for handling of international trains, while on the other, the removal of the exemption for EU-established pension fund management services will presumably generate income for the Exchequer. Will he therefore set out what impact, separately and net, these changes are expected to have on the tax base?
The second set of regulations makes changes to the Value Added Tax Act 1994 needed following the end of the EU exit transition period in the context of the Northern Ireland protocol. As we have heard, the measures in this instrument will ensure that VAT can be recovered by DIY house builders in Northern Ireland on goods used in construction purchased in the EU. It will also remove VAT relief for goods moved from Northern Ireland to Great Britain for avoidance purposes and ensure that recovery is possible if VAT is incurred when a business moves its own goods from Great Britain to Northern Ireland.
As I made clear, the Opposition want to see the Northern Ireland protocol operating effectively and we want people in Northern Ireland to be protected from disruption to their lives and their businesses. While these changes are therefore welcome, it is vital that businesses are supported in understanding and being able to follow the new arrangements they face. The Minister will know that my Opposition colleagues have been calling on the Government to support a major and effective information campaign for British businesses about the new rules on trade with Northern Ireland and to increase capacity at the Trader Support Service to help businesses to complete new customs declarations. In the light of the disruption we have seen since the end of the transition period, will the Minister set out what extra support the Government have decided to put in place since the beginning of this year? Can he confirm specifically whether, since 1 January, there have been any substantive changes to the Government’s communication strategy for British businesses about the new rules on trade with Northern Ireland or increases in capacity at the Trader Support Service? These are important questions to ensure that the protocol operates effectively, and I would welcome the Minister’s addressing them directly.
Peter Grant (Glenrothes) (SNP) [V]
The SNP will not oppose these motions either, because, as with most statutory instruments, the choice is to approve or reject them in their entirety, and rejecting them in their entirety would mean failing to address some serious gaps in legislation left by the Government’s shambolic handling of Brexit.
Most of the first set of regulations, SI No. 1312, is non-contentious. In fact, if we are honest, most of it is necessary to put right yet another great British Brexit blunder. The now Foreign Secretary and former Brexit Secretary did not realise that we needed lots of boats at Dover to do cross-channel trade. Now we find that Treasury Ministers knew they had to legislate for goods crossing the channel on planes and boats but forgot that goods could also get across the channel in the channel tunnel on a train. Regulations 2 to 8—most of this SI —are almost entirely about correcting that blunder.
Regulation 10, which the Opposition spokesperson mentioned, concerns me. I hope that the Minister will be able to give some reassurances about who it will affect and how much it will affect them. The regulation removes the VAT exemption on fees charged for the management of qualifying pension funds established in an EU member state. The explanatory notes say that the change is necessary as a consequence of withdrawal from the European Union. Will the Minister expand on exactly why it is a necessary consequence? Surely the exemption could have been retained as part of the trade deal the Government are so proud of. Did the Government actively seek to end the exemption, did they try to retain it but have to negotiate it away during the negotiations, or did they just completely forget about it, as they seem to have completely forgotten about so much else? Is it necessary because the Government want to do it or because they have sleepwalked into a situation where they are, in effect, forced to do it? What assessment have they made of the impact of the removal of this exemption? Do they know how many people in the UK have their pensions managed by EU-based funds, possibly without the pension holder even realising it? What is the total value of such funds? How much additional tax does the Treasury expect will become due as a result of this proposal?
Pension holders affected by this change went into a long-term relationship with their pension fund based on the VAT rules that applied at the time. They had a reasonable expectation that the rules would not be significantly changed during the term of their pension, but they are now being told that the rules have been changed and it is up to their pension fund to cough up the tax that becomes due. It may not technically fit the definition of “retrospective legislation”, but that is what it will feel like to those people.
As well as the impact on UK residents whose pensions are managed by EU-based funds, what happens in the converse situation? Presumably, it will also be necessary for every EU member state to now start charging VAT on the management fees for every pension fund that an EU resident holds with a UK pension manager. I imagine that this will be a bigger issue. So what assessment have the Government made of the value to the UK economy of the big financial centres, such as Edinburgh and London, selling their pension management expertise to the European Union? What assessment have the Government made of the impact on the competitiveness of that part of our financial services industry if its customers are to start paying VAT and its competitors do not?
I turn to the second of the statutory instruments, the Value Added Tax (Miscellaneous Amendments to the Value Added Tax Act 1994 and Revocation) (EU Exit) Regulations 2020. All the amendments to legislation proposed here appear reasonable and necessary for the smooth operation of the Northern Ireland protocol. In that regard, may I urge those calling for the protocol to be completely scrapped to ask themselves: whose interests would be served by the British Government welching on such an important international agreement almost before the ink has even dried on it? The protocol is flawed, for two reasons: it attempts to resolve an almost insoluble contradiction, which the Government have continuously refused to acknowledge; and, like almost everything else of critical importance to Northern Ireland during the Brexit process, it was thrown together at the last minute.
This statutory instrument is needed because we saw exactly the same kind of last-minute rush job just before Christmas with the Taxation (Post-transition Period) Act 2020. That Act passed its entire proceedings in this House in about four and a half hours. Under the rules of the House at that time, virtual participation in debate was not allowed, so inevitably the number of Members who could take part was reduced and the degree of scrutiny afforded to the Bill was affected. The scrutiny was so affected that the day after that Act had received Royal Assent the Government had already had to table this statutory instrument to correct mistakes in their own legislation. Provisions that were essential to allow the economy in Northern Ireland to continue to operate were thrown together at the last minute. We should never forget that the unique concessions the Government have made to Northern Ireland in the Brexit process were not made out of any respect for the will of the people there; they were made because the Government’s original intended solution of acting unlawfully and tearing up international treaties eventually became a step too far even for some of their own most loyal supporters. Although we welcome the fact that the Government have been forced to give some recognition to the will of the people of Northern Ireland, who never voted for this Brexit chaos, surely they deserve better than to be continually treated as an afterthought.
These two sets of regulations are necessary to make up for the incompetence of the Government of a wannabe global power, who did not realise that boats were a useful way for people on an island to trade across its sea borders. This Government also then forgot there was a tunnel so that people could also cross a sea border on a train, and they still continually forget that 1.8 million of their own citizens do not need to cross the sea to get to the EU; they have only to cross the road. My final question to the Minister is: how many more pieces of additional legislation are we going to have to approve in order to clear up after this Government’s incompetence?
John Redwood (Wokingham) (Con) [V]
I have declared my business interests in the Register of Members’ Financial Interests.
As the Minister has told us, these are two important statutory instruments for the facilitation of trade generally and for the facilitation of trade within Northern Ireland and between GB and Northern Ireland, and to the extent that they make things easier and allow zero rating of important services and goods, I welcome them wholeheartedly. But, of course, as others have said in this debate, we meet today against the background of clear difficulties and problems in the implementation of the Northern Ireland protocol, where it appears that a number of important impediments to GB-Northern Ireland trade have been inserted, and it is crucial that the talks go well and we get rid of them as quickly as possible.
So when we look at the administration of VAT, which is an important part of the trade process, I would like an assurance from the Minister that these regulations, and all the other VAT and excise rules applying in Northern Ireland and throughout the United Kingdom, will be solely administered and enforced by United Kingdom authorities, because I have much more confidence in them. Will he also assure me that the aim of these statutory instruments, and the wider VAT legislation that they add to and amend, is to ensure that the movement of goods from Great Britain to Northern Ireland, or the other way, will be as smooth and easy as the movement from London to Surrey or from Manchester to north Wales, because that is what I thought we had agreed and signed up to—that Northern Ireland was a fully integrated part of the United Kingdom single market, under our single market and taxation rules? I would like the reassurance through these statutory instruments that we are intending for that to be true.
Will the Minister also confirm that there has for many years during our period in the European Union been an important VAT border between the United Kingdom and the Republic of Ireland, but that it has always worked very smoothly and was not enforced at the physical border, in accordance with the spirit of agreements and not wanting barriers at the land border? It was an electronic border and adjustments were made by computer or by correspondence so that these things could be sorted out in a sensible and decent manner without having to have people queuing at borders to make complex calculations and submissions. If that is the case, does the Minister agree that it is in that spirit that we need to find the answer to the current impositions and difficulties affecting our trade across those borders? It seems very odd that we cannot replicate that success of our past trading, where electronic manifests, trusted trader schemes and so forth, and proper electronic VAT registration worked very well. Surely the UK authorities, if we are the proper and sole enforcement authority in Northern Ireland, can work with trusted traders, VAT-registered hauliers and ferry companies and so forth, and we can accept their certification or word that the goods on their load are entirely GB-Northern Ireland or Northern Ireland-GB. We can then accept, therefore, that there are no other considerations and the loads can then move as smoothly as from London to Guildford or Manchester to north Wales. It would be very helpful to hear the Minister’s views on how that can be achieved and how quickly we can get to that point.
It is absolutely crucial to the people of Northern Ireland, as we have heard from their representatives, that they can trade smoothly with the rest of the United Kingdom. That was fundamental to the spirit of the agreements that the United Kingdom entered into with the European Union over the issue of trade with and between Great Britain, Northern Ireland and the Republic of Ireland. I hope the Minister will have good news for us and that these things can be sorted out quickly.
Sammy Wilson (East Antrim) (DUP)
May I first echo the point made by the right hon. Member for Wokingham (John Redwood) that, as the implications of the protocol become ever more apparent, it becomes ever clearer that the promises made to the people in Northern Ireland that they can trade as freely with GB as they did before 1 January and that they will be regarded as fully part of the UK internal market, are not true? There is a border on the Irish sea. There is disruption of trade between Northern Ireland and GB, and vice versa. While the Prime Minister and the Government will maintain that the Union between Northern Ireland and the rest of the United Kingdom has not been affected, the truth of the matter is that the people of Northern Ireland are not experiencing the full benefits of being United Kingdom citizens that they had before 31 January.
Indeed, the regulations illustrate some of the issues that are still going to be faced by people and businesses in Northern Ireland. I welcome the fact that the Government have tried, at least, to overcome some of the implications of the protocol, but I say to the Minister that this kind of tinkering through VAT regulations will not answer the issues that people in Northern Ireland face.
Let me go through some of the issues that the regulations deal with. First, if DIY builders bring in materials—probably most commonly, in Northern Ireland, from the Irish Republic—that are subject to VAT, they will be able to claim back that VAT. What assessment has been made of the additional work that anyone will have to undertake in order to show the VAT that was payable in the Irish Republic or, indeed, in some other EU member state so that it can be claimed back under these regulations?
Do not forget that we are talking about DIY builders. I think of a constituent who came to me just this week because of a delay in the payment of the VAT refund that he was owed on a house that he had built over a period of years. As money became available to him, he built more and more of the house, and the VAT was outstanding. Even with the current regime, the paperwork involved was quite substantial, but he was doing it by himself; he was not a professional. Now we have this added complication. Other Members have talked about the need for clarification. What clarification will there be for people in such situations about what information they need to gather and the way in which it should be gathered?
The second issue is the supply of goods into Northern Ireland—the VAT that is required to be paid on them if they are moving on into the EU, and the fact that VAT can be refunded where the goods are staying in Northern Ireland although they might have been VAT-able.
I think of another example that was brought to me this week, by people involved in the aerospace industry in Northern Ireland. When they bring in aluminium from GB, they have to pay the VAT on it because, under the protocol, it is now coming into a part of the United Kingdom that is deemed to be subject to the EU VAT regime. When that aluminium goes into aircraft parts, the parts do not have any VAT on them, but until it goes into the parts and the parts are sold, those people are obliged to pay out the VAT on it.
That, of course, can be quite a substantial amount of money. It causes cash flow problems and leads to additional administration. I am not so sure that what is provided for in this legislation deals with that problem, because until those people can show either that the aluminium has been incorporated into the parts or that those parts are not going somewhere where they are eligible for European taxes, they have to make the payments.
The Minister is right that we have to close the loophole between Northern Ireland and GB for those who would seek to use Northern Ireland as a back door to escape paying VAT on goods that may be zero-rated in the United Kingdom. Again, what will that mean in terms of checks on goods coming through Northern Ireland ports to GB? How will it be determined that those goods have not originated in the Republic, as opposed to Northern Ireland? Will all Northern Ireland suppliers of goods into GB have to go through a process to show that the goods were made in Northern Ireland and are therefore exempt from VAT, or had had UK VAT rates applied to them? What additional checks and administrative burdens will that cause for businesses?
In relation to how HMRC has handled this issue, all the information I have from the Department for the Economy in Northern Ireland is that businesses are still confused. They do not know what is required of them. They do not know what paperwork will be required, how they claim exemptions and so on. There is a huge piece of work to be done. I come to the point that, despite what the Scottish National party spokesperson has said, we cannot hang on to this protocol. It is damaging relations within Northern Ireland, damaging the Northern Ireland economy and adding substantially to the requirements for businesses. This legislation shows that there will be additional requirements on businesses in Northern Ireland, which make trading more expensive.
The protocol is not some advantage or gift, as the Scottish National party would seek to try to present it to the people of Northern Ireland; it is poison to the people of Northern Ireland. It has poisoned relationships. In my constituency, we are finding that workers are under threat at the ports, such is the frustration and anger. That was never taken into consideration when the Unionist population of Northern Ireland was cynically set aside to get a quick deal with the EU on the basis that the important border was the border between Northern Ireland and the Republic, rather than the relationship that Northern Ireland has with its own country.
What are the implications for people who build their own houses in claiming VAT? They are bringing supplies in from, presumably, mostly the Irish Republic. What are the administrative implications for them? What are the implications for those businesses bringing in supplies from GB, for which VAT will have to be paid and then reclaimed at some later date? What exemptions can be made where it is quite clear that the goods are not going into the EU or that the materials are going into something that will never be VAT-able anyhow? How can we overcome that issue?
If the Government are going to close Northern Ireland as a back door into GB for those products from the European Union that are being routed through Northern Ireland to avoid UK taxes, what implications, if any, does that have for suppliers in Northern Ireland? If it has no implications, how do the Government intend to differentiate goods that are coming through the Republic into Northern Ireland from goods that are going purely from Northern Ireland to GB?
I implore the Minister to take this message back: as far as the protocol is concerned, we can have this continual tinkering, but it will not deal with its underlying, systemic and fundamental problems—that Northern Ireland is still subject to a large amount of law that originates outside its own country, which eats into the very heart of economic activity and undermines its constitutional position within the United Kingdom.
Mr Alistair Carmichael (Orkney and Shetland) (LD) [V]
It is a pleasure to follow the right hon. Member for East Antrim (Sammy Wilson) and, indeed, the right hon. Member for Wokingham (John Redwood). I confess that it was a surprise to hear the right hon. Member for Wokingham say that this was not something that he thought he had voted for. That contrasts somewhat sharply with the clarity of his position in recent years, but he can explain that for himself.
The right hon. Member for East Antrim is right that the arrangements bring an extraordinary level of complexity, and they do create that border down the Irish sea, which just months ago we were assured would never be the case. Of course, any objective observer could see that there was always going to have to be a border somewhere. That is what happens when unions start to be broken up—borders are put in. The border either had to be between the north and the south in Ireland or down the Irish sea, or else we could have chosen to remain part of the customs union. That was a political choice that the Government resolutely refused to make and, as a consequence of that political choice, businesses and private individuals now have to face the sheer range of complexities with which we are having to deal today, some of them even retrospectively. I hope that those who find themselves in that position—I will touch on a couple of constituency examples in a second—will bear in mind that this is not just a matter of administrative arrangements; we are dealing here with political choices.
I want to touch first on the VAT retail export scheme, which ended on 1 January. Under previous arrangements, overseas visitors were able to obtain a VAT refund on items that they had bought in Britain to take home with them in their luggage. The loss of that scheme risks seeing the loss of a significant amount of consumer spending in our economy. The scheme contributed literally billions of pounds to the British economy, helped to create thousands of jobs and ensured that the UK was one of the most attractive international shopping destinations globally. Scrapping it, especially in today’s economic climate, is in our view a huge error.
In the past, we have been able to attract high-spending overseas tourists. It has been a highly successful economic strategy, used by every other European country. International shoppers spend upwards of £6 billion annually in the UK. This has kept our cities on an equal footing with international competitors such as Paris, Milan and Madrid. However, by removing this incentive, we will boost our competitors and detract from the UK’s international appeal.
This is not just about London and Heathrow; the impact will be felt across the United Kingdom. According to the Centre for Economics and Business Research, Edinburgh will face an annual loss of £92 million; Manchester an annual loss of £60 million; Liverpool an annual loss of £32 million; and Leeds an annual loss of £18 million. The effect on jobs will be significant. The initial hit will be on retail and tourism, but that will eventually spill over into related sectors such as hospitality and manufacturing.
Tourism industry bodies warn that 70,000 jobs are in immediate jeopardy throughout the UK, while the CEBR estimate was almost double that. This is a huge and unnecessary risk for British workers and businesses. I pay warm tribute to my hon. Friend the Member for Edinburgh West (Christine Jardine), who, as the MP for Edinburgh airport, has been leading the charge on this issue. It is important that we hear from the Government how they intend to address the consequences of the political decisions that they have taken.
Another point I want to bring to the House’s attention comes from constituents who are, by and large, small single-person or very-few-person businesses seeking to export online. I was approached recently by a knitwear exporter. Knitwear, of course, is culturally and economically very important to Shetland for trade. She tells me that the advice that has been given by HMRC is that a one-stop shop will eventually be available, possibly from 1 July, to deal with the issues around the collection of VAT on online sales to the European Union. She has been told that, in the meantime, she has three options. A UK retailer can open an office or agency in one of the EU countries and collect VAT through it. Alternatively, they can choose not to levy the VAT on EU customers. In that case, the customer is levied the VAT by their domestic officials as an import tax before taking delivery of their purchases. That again illustrates the administrative burden that falls on small businesses such as the one run by my constituent. She tells me in an email:
“I predict that this will kill most small businesses trying to export to the EU. The end customer has to cope with a lot of paperwork and stress and most of the time doesn’t understand what’s going on. I’ve already had some irate emails and I suspect I have lost those customers (although they have bought from me 3 or 4 times in the past). Customs officials aren’t up to date on the arrangements. A German customer found out for me yesterday that even if I put shipping cost into the purchase price of the goods and declare ‘free shipping’ on the invoice, the customs officials will estimate the shipping cost and add that to the total on which VAT has to be paid. ‘Free Shipping’ helps sales. The potential customer knows what the final price will be when looking at product page. Customers who don’t complete their purchase at the checkout are most often deterred by the shipping cost that suddenly appears...This is fact,well known, well documented. We need to be able to continue operating with ‘free shipping’ without customs officials in other countries estimating shipping costs and adding that to the total taxable amount.”
That is just one small illustration of the challenges that are now being faced by small businesses the length and breadth of the country that are already struggling to make ends meet as a consequence of the economic challenges thrown up by the pandemic. These problems are only going to get worse. These businesses are fighting hard to compete with other businesses across the European Union that have none of those challenges. When the Minister comes to reply to the debate, what news can he give us about the one-stop shop that HMRC is offering to businesses such as the one run by my constituent? Can he guarantee that it will in fact be set up by 1 July? What else is he going to do to ensure that the administrative consequences of his political decisions and those of the rest of his Government are not left as a tab to be picked up by small businesses across the UK?
Mr Richard Holden (North West Durham) (Con)
These measures are clearly part of a proper package that is being presented by the Government today. I particularly welcome the first instrument, which extends the zero rating on aircraft, because that is particularly important for Teesside airport and for Newcastle airport, both of which have employees in my constituency. As a former special adviser to the Department for Transport, I also welcome the new zero rating for international rail, and I would like to hear from the Minister what impact he expects that to have on jobs in the UK. Will he also tell us what impact he expects the changes to the pension fund services to have on good jobs and revenue for the Exchequer? On the second instrument, it is pretty clear that Members across the House support the essential measures to stop tax avoidance, although there have been questions from the Opposition.
With your indulgence, Mr Deputy Speaker, I might just stray slightly, as the right hon. Member for Orkney and Shetland (Mr Carmichael) did, into the wider debate on VAT-free sales to non-EU visitors and the extra cash that is being raised from the VAT charged in the UK. I can quite understand why the Government are taking the decisions that they are, but with £1.4 billion at stake it seems pretty clear to me why we would not reverse that decision.
I would like to mention a couple of points regarding small businesses in my constituency. GetDressedForBattle is a small family business based in Consett, and Lanchester Wines is one the largest businesses and employers in my constituency, although it sits just outside my area. Both companies have faced issues with customs and excise over recent months. I ask the Minister to ensure that customs and excise staff are not being over-zealous since our departure from the EU, and to ensure simplification and speed in our customs and excise arrangements wherever possible so that small businesses can continue to export and create jobs in the United Kingdom.
Jim Shannon (Strangford) (DUP)
Thank you, Madam Deputy Speaker; that was a quick swap-over.
I want to express concern about something that my right hon. Friend the Member for East Antrim (Sammy Wilson) referred to: the confusion that clearly reigns in Northern Ireland in relation to VAT. I hold constituency surgeries every Saturday when I am back home. The one that I hold in Portavogie involves fishermen, and a fisherman recently came to me saying, “I can’t understand, Jim, what this VAT registration is to do with. I am already registered for VAT.” I said, “Well, I think this is probably to do with the EU, Brexit and where we stand.” He then phoned HMRC, but had real bother trying to get any clarification whatsoever; first he was waiting and then the line went dead. I have some concerns for the people—fishermen, but others as well—who really do not understand the EU VAT regime, the UK VAT regime or the implications for their businesses.
The Minister is always generous in responding to our questions, so perhaps he could clarify this matter for me and my constituents. Will he outline the position of Northern Ireland in relation to regulations 3 to 9 under “Amendment of Group 8 of Schedule 8 to the Value Added Tax Act 1994”, which make
“provision in connection with the United Kingdom’s exit from the EU”,
and mean that we find ourselves being taxed through VAT for goods, yet paying customs on parcels from the mainland? Let me give some quick examples; there are plenty, but I will just give two.
I have a constituent who gets leather from a company in Newcastle upon Tyne in the north of England. Indeed, I suspect that that might not be too far away from the hon. Member for North West Durham (Mr Holden). Orders usually come in about three parcels, each weighing about 20 kg to 30 kg. The courier price has gone up from precisely £13.50 to £16.50 plus VAT. But the new price for the product—the best the leather supplier can give—is an estimated minimum of £75 plus VAT, and other taxes that may be imposed by HMRC mean a cost of at least £90 inclusive per parcel. That is a real deviation and a problem for our constituents—an almost sixfold increase. The courier company says that most of the price increase is due to all the customs paperwork it now has to complete. Can we have some clarification from the Minister on the confusion that seems to reign?
I was speaking to another constituent yesterday, who every year orders items from a horse goods supplier across the water. She usually orders from one person, but this time she applied to four people. Two could not do it, one did not answer and the one who did answer said, “The product is £30, but we are going to have to add £42 for the VAT and service charges, so the cost will now be £72.” My constituent was able to go online and order the product from the United States of America at a comparable price to the original—around the £30 mark.
A further example—I think I said two, but there are actually three—is of a constituent who wanted to send a car part across from England. It needs to come on a pallet, weighing 50 kg. He was advised by the shipping agent that he would have to pay £45 plus VAT for customs clearance. The charge is more than the part is worth. This again highlights something that we need clarification on. He is absolutely astonished that this is the case within the United Kingdom, and so am I.
I hope I have caught this right in relation to the issue about VAT and suppliers—my right hon. Friend the Member for East Antrim referred to it as well—and that those who buy cement, wood, concrete, building blocks and so on from the Republic of Ireland can reclaim their VAT. If that is the case, that answers one of my queries in an earlier exchange on this matter, just before Christmas, I think it was. If that is sorted and the VAT repayment that my right hon. Friend referred to can be done quickly, urgently and on the timescale that it should be, that would be good news.
The statutory instrument extends zero VAT to certain sectors. I highlight the inadequacy of this SI, and through you, Madam Deputy Speaker, query whether the Minister agrees that this measure should be extended to all products coming into Northern Ireland from the rest of the UK in any form of haulage or transportation, in the light of the customs expectation, which sees products costing six times the price, post the Irish sea border. These are real issues that affect the pockets of my constituents, those of my right hon. Friend and indeed people across the whole of Northern Ireland. I urge the Minister to go back to the Cabinet and raise the fact that these SIs do not provide parity for Northern Ireland as an integral part of the United Kingdom, yet we pay tax and customs. Other steps must be urgently taken.
I have to express these concerns on behalf of my constituents. I am sorry to do so. I hope the Minister will give us the clarification we need. We are 34 days into the Northern Ireland protocol, and boy, is it hard to understand.
Jesse Norman
I am grateful to all right hon. and hon. Members who contributed to the debate, which has been constructive and useful. I am also grateful to the Opposition for their support for this measure, and to the Scottish National party.
The hon. Member for Ealing North (James Murray) asked about the assessment of the impact of these measures on the income tax—I think he means VAT—base. Of course, being a diligent soul, he will undoubtedly have carefully cosseted the tax impact and information note and seen that no significant impact is expected from this, because the VAT will have been recovered in any case by a VAT-registered business, or would have been recovered otherwise. This set of measures in many ways merely restores the status quo. He asked a question that was indirectly raised by the hon. Member for Strangford (Jim Shannon), about, as it were, potential confusion in Northern Ireland. The trader support service is functioning, in relation to advising on imports, extremely well overall. It has been heavily supported by the UK Government, as the hon. Member for Ealing North will know, and offers what is in effect a globally unique facilitation and intervention.
The hon. Member for Glenrothes (Peter Grant) was very free in accusing the Government of incompetence, as is the way with his party. Knowing that he would wish to be competent himself, I encourage him to read the tax impact and information note. He will know that these measures are already in the protocol and are therefore already, as it were, incorporated via the protocol in UK law. No new impacts are expected from the legislation, as those tax impact and information notes set out.
My right hon. Friend the Member for Wokingham (John Redwood) asked whether VAT rules will be administered and enforced by the UK Government. They will, through Her Majesty’s Revenue and Customs. He rightly raised wider concerns about Northern Ireland and some of the events we have seen in the last few days. I would refer him and all Members to the comprehensive remarks made by the Chancellor of the Duchy of Lancaster yesterday in response to the urgent question on the topic. He also asked whether there would be easy movement. He will know that we have put in place unfettered access for Northern Irish exports into Great Britain and a very comprehensive set of measures to support and facilitate imports into Northern Ireland and to reduce any possible administrative burden.
Jesse Norman
The right hon. Member for East Antrim (Sammy Wilson) wishes to intervene, so I invite him to do so before I come to his remarks.
Sammy Wilson
I thank the Minister for giving way, and I hope he will address some of the points I raised. It is right that HMRC will be in charge of the collection of VAT, but one of the problems appears to be that, while we have the trader support service in Northern Ireland—which in most cases, but not always, has been helpful in giving advice to businesses there—many businesses in GB have not had the same level of information. One of the reasons why some of those businesses are saying that they are not going to sell to Northern Ireland is simply that they believe that the processes are so complicated, and they have no support by either having that clarified or being assured that the customs declarations and all the other paperwork will not be as complicated as they think it will be.
Jesse Norman
It is very easy to overstate the complexity of the issues involved. In the cases that the right hon. Gentleman mentions, the Northern Irish partner has full access to the trader support service, and the Great British partner has a comprehensive amount of guidance online, so the two come together. Inevitably, people will take some time to get used to what is, after all, a change in the arrangements. He is right to pick up the point about the effectiveness of the TSS. I do not think there is a suggestion that the support that businesses have been given in terms of information is anything less than comprehensive.
The right hon. Member for East Antrim asked about do-it-yourself builders. I can confirm that no further information will be required from do-it-yourself house builders, who will file a single VAT return. Obviously, they will be subject to the same proof of payment as they would have been before. In general, the point of this scheme is that without it, they would not be able to deduct acquisition VAT as they could prior to the end of transition period. Through this scheme, they can continue to recover the same VAT as they could before, therefore it is thoroughly to be welcomed.
The right hon. Member for Orkney and Shetland (Mr Carmichael) asked about VAT RES. I am very sorry, but that was in the wrong debate. If he had held his horses, he could have raised that in the next debate, or he could have raised it—equally inappropriately—in the previous debate, which I see he was down to speak in. The good news is that my hon. Friend the Exchequer Secretary will address these issues comprehensively in the debate to follow.
On the issue of small exporters, exports are zero-rated in relation to the UK, and they are not the principal topic of the legislation that we are discussing. The right hon. Member for Orkney and Shetland will be aware that there are measures coming from the EU in July, as I understand it, in relation to these matters that will to some extent—we wait to see the detail—mirror the facilitations that have been put in place, and they will hopefully support exporters from his constituency into the EU.
My hon. Friend the Member for North West Durham (Mr Holden) again raised the question about jobs and revenue. He will see that the tax information impact note does not expect there to be a significant material difference with regard to these issues, but there might, of course, have been some impact had we not put the facilitations in place and therefore these preserve the status quo, and rightly so.
I have already touched on some of the issues relating to the confusion over VAT that was raised by the hon. Member for Strangford). As he knows, in relation to imports, we have the Trader Support Service and, in relation to exports, there is comprehensive guidance available for anyone seeking to export.
Question put and agreed to.
Resolved,
That the Value Added Tax (Miscellaneous Amendments to Acts of Parliament) (EU Exit) Regulations 2020 (S.I., 2020, No. 1312), dated 18 November 2020, a copy of which was laid before this House on 19 November, be approved.
Resolved,
That the Value Added Tax (Miscellaneous Amendments to the Value Added Tax Act 1994 and Revocation) (EU Exit) Regulations 2020 (S.I., 2020, No. 1544), dated 18 December 2020, a copy of which was laid before this House on 21 December, be approved.—(Jesse Norman.)
Madam Deputy Speaker (Dame Rosie Winterton)
I am suspending the House for a few minutes to enable the necessary arrangements for the next business to be made.