Taxation (Cross-border Trade) Act 2018
The Government has confirmed that following Royal Assent the Taxation (Cross-border Trade) Act 2018 is now in force.
Among its provisions, the Act will provide for the establishment of an independent customs regime once the UK has withdrawn from the EU. It will also amend existing VAT and excise legislation to abolish the EU concept of acquisition VAT and introduce a range of delegated powers including the imposition, administration, collection and enforcement of customs duty.
The Act does not presuppose any particular outcome from the UK’s negotiations with the EU and allows for a range of outcomes, including an implementation period or the UK leaving without a negotiated outcome.
Separate VAT system
In July, during the passage of the Bill, the House of Commons considered amendments to legislation. The Government supported amendment 73 (which was ultimately successful), which effectively commits the UK to having a separate VAT system to the EU.
Separately an opposition backed amendment (new clause 2) supporting alignment with the EU VAT system, was rejected by the Government, with Mel Stride, the Financial Secretary to the Treasury, speaking on behalf of the Government, stating:
“I shall turn now to our future VAT arrangements with the EU. New clause 2 seeks to establish a negotiating objective to maintain the UK’s participation in the EU VAT area. This would limit our ability to appropriately consider our future VAT policy, and for that reason we reject it.”
Assessing the debate there is only limited suggestion that greater autonomy over VAT rates was the driving force (although there was reference to greater flexibility over the VAT rates of tampons and solar panels). Instead it appears to have been designed to make any future customs arrangement with the EU problematic.
While Brexit negotiations continue to progress, this is the first concrete indication that the Government is willing to operate an independent VAT system, which could present both threats and opportunities for the sector.