To what extent has the government taken full advantage of those Brexit freedoms?
During a debate on the Spring Finance Bill, Gareth Davies, Exchequer Secretary to the Treasury, emphasised the UK government’s intention to take ‘full advantage of the opportunities arising from the UK’s exit from the European Union’ and to ‘make the most of our Brexit freedoms’. So, what has been happening?
The Retained EU Law (Revocation and Reform) Bill continues to make its way through Parliament. As originally drafted, the Bill would have revoked all EU-derived subordinate legislation and retained direct EU legislation at the end of 2023. Would this have included tax legislation? The press release issued on the introduction of the Bill to Parliament stated that ‘all required legislation relating to tax and retained EU law will be made via the Finance Bill (or subordinate tax legislation) which is usual and appropriate for tax provisions’. But, as far as we could see, tax-related secondary legislation and retained EU law had not been explicitly carved out from the scope of this sunset provision.
It therefore came as a relief when the government removed this general sunset provision in favour of a narrower provision which revokes ‘only’ around 600 instruments; all others remain in place until amended or revoked in the future. The list of instruments includes a small number of tax-related ones, but their revocation did not seem particularly ground-breaking. Several of these instruments made provisions equivalent to the Savings Directive which the EU had repealed a while ago. But other provisions in the Bill – such as the revocation of s 4 of the European Union (Withdrawal) Act 2018 (which had preserved certain rights, powers, liabilities, obligations, restrictions, remedies and procedures derived from EU law) and the abolition of the supremacy of EU law – may yet prove to have far-reaching (and possibly unintended) consequences.
Regarding other opportunities of which the government has already made use, the exchequer secretary stated that: ‘Indeed, we have already set in motion a number of measures that capture those freedoms, whether it is the VAT relief on women’s sanitary products, cutting VAT on the supply of energy-saving materials or, as we have heard, measures in [the Spring Finance Bill] to reform our alcohol duty system. None of that could have been implemented had we remained in the European Union, and we will go further over the course of the months and years ahead’.
Indeed, from 4 May 2023, HMRC changed its practice on late payment interest where a payor fails to withhold tax on UK source interest where treaty relief would have been available had it been applied for in advance. In these circumstances, HMRC may operate a concession whereby it would not collect the tax but issue an ‘interest only’ assessment – except previously where the payee was resident in the EU (in which case not even an interest only assessment would have been issued although penalties might still have been charged). The change in practice was to remove this exception in respect of EU payees; where there is an EU payee, late payment interest will now be charged in the same way as it would be in a case where the payee was resident in any other foreign country. The change also applies to royalties but is less likely to have any effect in practice.
The government has also announced that certain rules will become more territorial. Pursuant to the Spring Finance Bill, UK charity tax reliefs and exemptions will be restricted to UK charities and community amateur sports clubs to ‘protect the integrity of the tax system, as UK charities and community amateur sports clubs that are located outside the UK are harder for HMRC to police’. At the Spring Budget, it was also announced that the government will restrict eligibility to manage ISAs and child trust funds to financial institutions with a UK presence; the restrictions on overseas expenditure in R&D tax reliefs are also still intended to be enacted, albeit one year later than originally announced.
There may also be further changes to VAT. While the Treasury’s technical consultation on the VAT treatment of fund management services indicated that there would merely be a codification of the existing exemption for fund management services provided to ‘special investment funds’ (currently found in a patchwork of UK law, retained EU law, general principles, guidance and a body of case law) rather than any policy change, the Spring Budget confirmed that the government continues to work with industry stakeholders on reforms to simplify the VAT treatment of financial services. There have also been calls for a more fundamental rethink of the VAT system, in particular, with a view to encouraging sustainability. So, watch this space!
To what extent has the government taken full advantage of those Brexit freedoms?
During a debate on the Spring Finance Bill, Gareth Davies, Exchequer Secretary to the Treasury, emphasised the UK government’s intention to take ‘full advantage of the opportunities arising from the UK’s exit from the European Union’ and to ‘make the most of our Brexit freedoms’. So, what has been happening?
The Retained EU Law (Revocation and Reform) Bill continues to make its way through Parliament. As originally drafted, the Bill would have revoked all EU-derived subordinate legislation and retained direct EU legislation at the end of 2023. Would this have included tax legislation? The press release issued on the introduction of the Bill to Parliament stated that ‘all required legislation relating to tax and retained EU law will be made via the Finance Bill (or subordinate tax legislation) which is usual and appropriate for tax provisions’. But, as far as we could see, tax-related secondary legislation and retained EU law had not been explicitly carved out from the scope of this sunset provision.
It therefore came as a relief when the government removed this general sunset provision in favour of a narrower provision which revokes ‘only’ around 600 instruments; all others remain in place until amended or revoked in the future. The list of instruments includes a small number of tax-related ones, but their revocation did not seem particularly ground-breaking. Several of these instruments made provisions equivalent to the Savings Directive which the EU had repealed a while ago. But other provisions in the Bill – such as the revocation of s 4 of the European Union (Withdrawal) Act 2018 (which had preserved certain rights, powers, liabilities, obligations, restrictions, remedies and procedures derived from EU law) and the abolition of the supremacy of EU law – may yet prove to have far-reaching (and possibly unintended) consequences.
Regarding other opportunities of which the government has already made use, the exchequer secretary stated that: ‘Indeed, we have already set in motion a number of measures that capture those freedoms, whether it is the VAT relief on women’s sanitary products, cutting VAT on the supply of energy-saving materials or, as we have heard, measures in [the Spring Finance Bill] to reform our alcohol duty system. None of that could have been implemented had we remained in the European Union, and we will go further over the course of the months and years ahead’.
Indeed, from 4 May 2023, HMRC changed its practice on late payment interest where a payor fails to withhold tax on UK source interest where treaty relief would have been available had it been applied for in advance. In these circumstances, HMRC may operate a concession whereby it would not collect the tax but issue an ‘interest only’ assessment – except previously where the payee was resident in the EU (in which case not even an interest only assessment would have been issued although penalties might still have been charged). The change in practice was to remove this exception in respect of EU payees; where there is an EU payee, late payment interest will now be charged in the same way as it would be in a case where the payee was resident in any other foreign country. The change also applies to royalties but is less likely to have any effect in practice.
The government has also announced that certain rules will become more territorial. Pursuant to the Spring Finance Bill, UK charity tax reliefs and exemptions will be restricted to UK charities and community amateur sports clubs to ‘protect the integrity of the tax system, as UK charities and community amateur sports clubs that are located outside the UK are harder for HMRC to police’. At the Spring Budget, it was also announced that the government will restrict eligibility to manage ISAs and child trust funds to financial institutions with a UK presence; the restrictions on overseas expenditure in R&D tax reliefs are also still intended to be enacted, albeit one year later than originally announced.
There may also be further changes to VAT. While the Treasury’s technical consultation on the VAT treatment of fund management services indicated that there would merely be a codification of the existing exemption for fund management services provided to ‘special investment funds’ (currently found in a patchwork of UK law, retained EU law, general principles, guidance and a body of case law) rather than any policy change, the Spring Budget confirmed that the government continues to work with industry stakeholders on reforms to simplify the VAT treatment of financial services. There have also been calls for a more fundamental rethink of the VAT system, in particular, with a view to encouraging sustainability. So, watch this space!
