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

Jonathan Reynolds Excerpts

Tuesday 14th May 2019 General Committees

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

It is indeed a great pleasure to serve under you in the Chair, Mr Sharma. It has been a while since the Minister and I addressed a no-deal statutory instrument together, but unfortunately we remain n a process beset by uncertainty and have little insight into whether we will actually need this regime. The Opposition’s view has not changed and we continue to have profound concerns about conducting such significant decision making through the secondary legislative process.

Today, we are here to discuss matters relating to VAT. Existing VAT exemptions for cross-border trade among member states are critical, and any changes need to be carefully considered. I would like to raise two broad questions before getting into the detail of the instruments. In the run-up to 29 March, Opposition Members spent many happy hours in Committee Rooms debating dozens of no-deal statutory instruments that the Government had laid before the House. However, with the extension until 31 October, that preparation essentially ceased. Indeed, some legislation, such as the Financial Services (Implementation of Legislation) Bill, has not returned to Parliament at all, and we still have no date for that. First, therefore, I ask the Minister why selective no-deal preparation has resumed today, with instruments such as these. Will he offer some clarity as to the strategy now being pursued?

Secondly, a large number of the instruments that we dealt with in that period related to establishing a temporary permissions regime and to onshoring EU rules on financial services, so that firms operating in the sector would have a minimum period to cope with transition and to mitigate any consumer detriment in a no-deal scenario. Given that the proposed non-EU scheme will allow British companies to operate within the EU in the same way as they do now, why are the Government not seeking regulatory alignment on some of the VAT issues raised today, even on a temporary basis?

We are talking about the impact on small businesses, which have fewer resources and less time to deal with disruption, so what efforts are being made to minimise disruption for them? The approach seems inconsistent, as in some elements there has been a divergence from the status quo and in others we have had measures intended to duplicate the existing framework. It does not seem right that such policy decisions are being taken in an opaque manner without any real explanation being provided to Parliament.

The first instrument before us will repeal the most recent changes to the VAT MOSS provisions, as the Minister described. Those provisions made life easy for businesses by preventing them from having to register for VAT in every member state in which they supplied digital services. It is worrying, therefore, in relation to smaller businesses that may not be in a position to quickly adapt to the changes, that those provisions may be withdrawn if we crash out without a deal. Has action been taken to raise awareness of the potential change among small businesses? With the addition of the difficulties raised by the Making Tax Digital programme, is there not a risk that small businesses will be heavily disrupted by wide-ranging and rapid change in VAT, for which there is insufficient resource at HMRC to offer appropriate support? I note that no impact assessment has been carried out, which seems ill advised given the potential consequences for small businesses. How can HMRC offer adequate support if we do not know how many businesses will be affected, and to what extent?

The second instrument relates to the data-gathering powers in schedule 23 of the Finance Act 2011. The Minister has elaborated on the explanatory memorandum’s stating that the instrument enables:

“HMRC to ensure that overseas businesses sending goods to the UK in postal packets comply with those regulations... HMRC will require information on such imports and therefore will need to obtain data from various parties involved in these transactions. The instrument amends current data gathering legislation to add “postal operators” as a category’.”

Once again, the Opposition are concerned that legislation has been designed to enable a new customs regime without proper parliamentary consultation. The instrument stipulates that data can be provided only if it is relevant to VAT; however, the rationale for that limitation has not been made clear and I ask the Minister to clarify it just a bit further.

The final instrument, the Customs (Records) (EU Exit) Regulations 2019, require that

“a person who is subject to a Customs obligation…keep and preserve records, in such form, and for such period, as specified in a notice published by HMRC.”

Although the explanatory note indicates that the intention is to replicate the current EU requirements, there is insufficient clarity about what is required and what the potential penalties might be for non-compliance. Will the Minister confirm whether there will be any change from the current system? How will any penalties be decided? What communication has taken place with the businesses that may be affected? I shall be grateful if the Minister provides some clarity on those points before we decide our course of action today.