VAT (Place of Supply of Services) (Supplies of Electronic, Telecommunications and Broadcasting Services) (Amendment and Revocation) (EU Exit) Order 2019
Finance Act 2011, Schedule 23 (Data-Gathering Powers) (Amendment) (EU Exit) Regulations 2019
Customs (Records) (EU Exit) Regulations 2019
(Limited Text - Ministerial Extracts only)
Read Full debate
The Financial Secretary to the Treasury (Mel Stride)
I beg to move,
That the Committee has considered the Value Added Tax (Place of Supply of Services) (Supplies of Electronic, Telecommunication and Broadcasting Services) (Amendment and Revocation) (EU Exit) Order 2019 (S.I. 2019, No. 404).
The Chair
With this it will be convenient to consider the Finance Act 2011, Schedule 23 (Data-gathering Powers) (Amendment) (EU Exit) Regulations 2019 (S.I. 2019, No. 397) and the Customs (Records) (EU Exit) Regulations 2019 (S.I. 2019, No. 113).
Mel Stride
It is a pleasure to serve under your chairmanship, Mr Sharma. The Value Added Tax (Place of Supply of Services) (Supplies of Electronic, Telecommunication and Broadcasting Services) (Amendment and Revocation) (EU Exit) Order 2019 amends the Value Added Tax Act 1994 to reverse changes made on 1 January in consequence of an EU-wide change to the place of supply of electronic, telecommunication and broadcasting services, or “digital services”. The place of supply rules govern where VAT has to be paid.
Since 1 January 2015, the place of supply of digital services made to a private consumer in the EU has been the consumer’s member state. Businesses that make supplies of digital services are therefore required to account for VAT in each member state where their consumers are located. To facilitate payment of VAT, the mini one-stop shop, or MOSS, was established. MOSS is an EU-wide simplified registration and accounting scheme, which allows businesses that supply digital services to consumers to register for VAT in one member state, rather than in each member state where they make supplies. Since VAT MOSS is an EU scheme, on exit from the EU, the UK will no longer be eligible to take part in it.
On 1 January 2019, the EU made further changes to the place of supply rules for digital services, which were implemented by amendments to the VAT Act. Those changes removed the requirement for EU businesses with very low cross-border trade to register in respect of supplies to consumers in other member states. If an EU business’s total cross-border supplies are valued at less than €10,000, or £8,818, the place of supply is now the supplier’s member state and not the consumer’s. In those circumstances, VAT is due in the supplier’s member state, subject to any domestic registration threshold. That treatment could no longer apply to UK businesses in the event that the UK left without a deal, because the UK would no longer be a member state. The changes to the VAT Act would therefore become redundant.
The changes made by the order are consistent with the changes to the VAT Act made by the Taxation (Cross-border Trade) Act 2018, which included removal of the VAT MOSS. However, the 2018 Act predated the changes to the place of supply rules, which is why a separate instrument is required. If we did not proceed with this instrument there would be no immediate impact, since the legislation is otiose and should no longer have practical effect. However, manipulation of the place of supply rules has been used in the past for tax avoidance, so, although no risk has been identified, it makes sense to remove the superfluous legislation now. That approach will also provide certainty and consistency with other amendments made to VAT primary legislation. I commend the order to the Committee.
The Finance Act 2011, Schedule 23 (Data-gathering Powers) (Amendment) (EU Exit) Regulations 2019 enable Her Majesty’s Revenue and Customs to request data from postal operators in support of the compliance strategy for parcels. In the unlikely event of the UK leaving the EU without a deal, the Value Added Tax (Postal Packets and Amendment) (EU Exit) Regulations 2018 would introduce a new policy in respect of imports of parcels, transferring the liability for payment of import VAT on consignments of goods with a value of £135 or less from the UK consumer to the overseas supplier. To enable HMRC to ensure compliance with the new regime, it will be necessary for it to obtain information on those imports from businesses involved in the transaction chain.
Clearly, postal operators are well placed to provide useful information on the parcels they deliver in order to allow HMRC to ensure that overseas suppliers pay the import VAT due. The regulations are the first step in ensuring that HMRC can obtain that information. Schedule 23 to the Finance Act 2011 enables HMRC to collect relevant data from certain third parties. The regulations simply extend those powers to include postal operators in the unlikely event of the UK leaving the EU without a deal.
The next step will be to set out in detail the type of information that HMRC can require postal operators to provide. That will be done by way of a separate statutory instrument. However, HMRC can require data holders only to provide information that they acquire as part of their normal business activities. It cannot require them to collect additional information and provide it to HMRC. The rules as a whole will therefore balance the need to ensure that tax is collected, where due, with the need to prevent additional costs or administrative burdens from falling on business.
Failing to agree to proceed with this instrument will not in itself change the introduction of the new parcels policy in the unlikely event of the UK leaving the EU without a deal, but it will mean that HMRC may not be able to collect the necessary data to ensure compliance with that policy. HMRC may be unable to satisfactorily assure itself that the new policy is working correctly and therefore spot and deal with any difficulties. That in turn could lead to losses in VAT revenue.
The third instrument is the Customs (Records) (EU Exit) Regulations 2019, which are needed to incorporate existing record-keeping requirements relating to customs obligations, currently contained in EU law, in UK law after the UK’s departure from the EU. They cover all types of customs transaction and are designed to provide customs officials with an effective audit trail for the movement of goods, including the intended use of the goods, the point at which they became liable for import duty, the level of that duty, and details of the payment. The regulations require HMRC to publish a notice containing the requirements for the types of record that importers and exporters and those connected to imports and exports will be expected to keep, the format of those records and the length of time for which they will need to be retained.
The requirements contained in the notice, in conjunction with provisions in the Customs Traders (Accounts and Records) Regulations 1995, will maintain existing record-keeping requirements, which means that those involved will be required to continue to retain relevant documentation for a customs transaction, on both imports and exports, for a suitable period, usually not less than three years. That is in line with the Government commitment to provide maximum certainty for businesses after EU exit. The record-keeping requirement is of course essential to enable a customs authority to assure customs processes by checking and confirming transactions and declarations, particularly where potential discrepancies are identified after the relevant transactions have taken place.
I commend the instruments to the Committee.
Mel Stride
I thank the hon. Members for Stalybridge and Hyde and for Glasgow Central for their contributions. I will endeavour to go through their points.
The hon. Member for Stalybridge and Hyde made a general overarching point about the uncertainty of Brexit. I agree with him about that, which is why the Government are working so hard, including through conversations with his Front Bench, to secure a negotiated arrangement with the European Union whereby we have an orderly exit. The measures are being brought in only on the basis that, in the unlikely event of day one no deal, we will be able to switch them on by way of an appointed day order.
An important point for the Committee is that we are not rushing these measures in immediately; we have time to see how the negotiations conclude and to bring the measures into effect at the appropriate moment. That also gives us some time to address the specific point about how we propose to make sure that those affected by the measures are aware of them. Of course, we have consulted extensively on these matters with businesses across the country that are involved in imports and exports, and there is an extensive amount of information on that area on gov.uk. There was also an impact assessment that covered, among others, the two instruments that relate specifically to VAT measures, which concluded that the impact would be relatively modest.
The hon. Gentleman is also concerned about the fact that we are using secondary legislation for the measures, but we published the statutory instruments some time ago. I think I am right in saying that the instrument relating to VAT MOSS was published in January, and the other two have also been available for hon. Members to consider for a reasonable amount of time. Of course, they are also affirmative instruments, rather than negative instruments, given that they make amendments to primary legislation.
I was asked specifically why the instruments were being moved today, rather than at any other point. It is a case of making sure that we put them in place so we can switch them on through an appointed day order in the event that we come out without a deal. Of course, in theory at least, we have until the end of October to conclude our arrangements with the European Union.
The hon. Gentleman spoke about the importance, as he saw it, of regulatory alignment with the EU in the context of VAT, on which I agree with him. We have always made it clear that it is our intention and desire for VAT and other tax issues, and indeed customs measures more generally, between us and the European Union to be as closely aligned as possible, so we have a period of stability as we go forward in whatever new arrangement we end up in.
The hon. Gentleman also asked about what would happen to the UK businesses that have benefited from what I accept are considerable easements and simplifications related to the operation of VAT MOSS if we leave without a deal. We have always been clear that either they would have to register with the individual member states with whom they were transacting VAT-applicable business and digital services, or they could afford themselves of the benefits of the non-Union VAT MOSS arrangements available to those outside the European Union.
The hon. Members for Stalybridge and Hyde and for Glasgow Central both made points about the data that will need to be collected under the parcels regulations. I assure the Committee that, as I set out in my opening remarks, there will be no additional burden on business. The focus is strictly on obtaining data that is relevant to parcel collections.
Alison Thewliss
The Minister says that there is no additional burden to business, but is he not asking businesses to do something that they were not doing before?
Mel Stride
The additional burden, such as it might be, would be registering and being prepared to provide information that is already being collected. In their day-to-day transactions, those businesses already collect a large amount of information, for example on the flow of parcels, where they come from and their value. As the hon. Lady will know, for parcels with a value below £135 the responsibility for accounting for the VAT will transfer from the UK to the sender in one of the EU27 states. To rephrase my point, the additional administrative burden will be proportionate and relatively slight—that is probably a better way to describe it.
The hon. Lady asked about the penalty regime with respect to the responsibilities and obligations that will materialise under the regulations on customs transactions. The answer is that there will be no change to the regime for the businesses concerned. She spoke about consultation, which I think I have dealt with. She also observed that the changes under the VAT MOSS order relate to changes that happened as recently as January 2019. We could not have foreseen those changes, and there are no changes to primary UK legislation. As I set out in my opening speech, it makes sense to rid ourselves of that superfluous legislation, for the reasons that I gave about the potential risk that it could be used for tax avoidance purposes.
The hon. Lady mentioned the three-year period for which customs data will have to be held. Under the current European Union arrangements, however, the data is retained for four years, so the new system will be no more onerous.
Question put and agreed to.
Resolved,
That the Committee has considered the Value Added Tax (Place of Supply of Services) (Supplies of Electronic, Telecommunication a Broadcasting Services) (Amendment and Revocation) (EU Exit) Order 2019 (S.I. 2019, No. 404).
Finance Act 2011, Schedule 23 (Data-gathering Powers) (Amendment) (EU Exit) Regulations 2019
Resolved,
That the Committee has considered the Finance Act 2011, Schedule 23 (Data-gathering Powers) (Amendment) (EU Exit) Regulations 2019 (S.I. 2019, No. 397).—(Mel Stride.)
Customs (Records) (EU Exit) Regulations 2019
Resolved,
That the Committee has considered the Customs (Records) (EU Exit) Regulations 2019 (S.I. 2019, No. 113).—(Mel Stride.)