HMRC have published a new policy paper Interpretation of VAT and excise law and draft legislation which clarifies how VAT and excise legislation should be interpreted in the light of changes made by the Retained EU Law (Revocation and Reform) Act (REULA) 2023.
HMRC states that, in relation to VAT and excise law, in line with REULA 2023, it will no longer be possible for any part of any UK Act of Parliament or domestic subordinate legislation to be quashed or disapplied on the basis that it was incompatible with retained EU law. It also ensures that UK VAT and excise legislation continues to be interpreted as Parliament intended, drawing on rights and principles that currently apply in interpreting UK law.
Without this measure, billions of pounds of exchequer revenue would be at risk. Prior to the publication of the paper, there had been uncertainty around whether HMRC could continue to rely on principles of EU law when interpreting UK VAT law after 31 December 2023, due to the effects of REULA 2023.
In a client briefing, EY commented: ‘The draft legislation makes clear that courts should continue to take a purposive approach to construing UK legislation, continuing to apply EU law principles. A strong purposive approach to statutory construction is sometimes referred to as a “muscular” approach in which words can be effectively added or omitted from legislation as passed for the purposes of construing what is meant. Whilst it is not permissible to disapply UK legislation, the muscular approach means that disapplication is necessary much less often than might otherwise be the case. As previously shared, the construction of UK law may get increasingly difficult as time goes on if there are significant new CJEU judgments that change a previous understanding of EU law. There would be a question as to whether those judgments declare what the purpose already was, in which case it could be taken account of in a purposive approach or represent a change of some kind which would not. In essence, the draft legislation will mean that [REULA 2023] will make little difference in the field of VAT since the position remains largely as it was under the European Union (Withdrawal) Act 2018.’
HMRC are consulting on the draft legislation until 17 November 2023, before including it in ‘an upcoming Finance Bill’. Questions on the change should be emailed to retainedeulaw.financebill@hmrc.gov.uk.
The importance of the measure can be illustrated by the Upper Tribunal (UT) decision in Impact Contracting Solutions Limited v HMRC [2023] UKUT 215 (TCC). The UT decided that HMRC was entitled to rely on the principle of EU law that prevents abuse of the VAT system to cancel the VAT registration of the appellant company. The tribunal noted the importance of that principle of EU law in tackling VAT fraud. Footnote 4 to the decision explains that the tribunal did not consider what effect, if any, REULA 2023 ss 3 and 4 would have because those sections do not apply to anything occurring before 31 December 2023.
HMRC have published a new policy paper Interpretation of VAT and excise law and draft legislation which clarifies how VAT and excise legislation should be interpreted in the light of changes made by the Retained EU Law (Revocation and Reform) Act (REULA) 2023.
HMRC states that, in relation to VAT and excise law, in line with REULA 2023, it will no longer be possible for any part of any UK Act of Parliament or domestic subordinate legislation to be quashed or disapplied on the basis that it was incompatible with retained EU law. It also ensures that UK VAT and excise legislation continues to be interpreted as Parliament intended, drawing on rights and principles that currently apply in interpreting UK law.
Without this measure, billions of pounds of exchequer revenue would be at risk. Prior to the publication of the paper, there had been uncertainty around whether HMRC could continue to rely on principles of EU law when interpreting UK VAT law after 31 December 2023, due to the effects of REULA 2023.
In a client briefing, EY commented: ‘The draft legislation makes clear that courts should continue to take a purposive approach to construing UK legislation, continuing to apply EU law principles. A strong purposive approach to statutory construction is sometimes referred to as a “muscular” approach in which words can be effectively added or omitted from legislation as passed for the purposes of construing what is meant. Whilst it is not permissible to disapply UK legislation, the muscular approach means that disapplication is necessary much less often than might otherwise be the case. As previously shared, the construction of UK law may get increasingly difficult as time goes on if there are significant new CJEU judgments that change a previous understanding of EU law. There would be a question as to whether those judgments declare what the purpose already was, in which case it could be taken account of in a purposive approach or represent a change of some kind which would not. In essence, the draft legislation will mean that [REULA 2023] will make little difference in the field of VAT since the position remains largely as it was under the European Union (Withdrawal) Act 2018.’
HMRC are consulting on the draft legislation until 17 November 2023, before including it in ‘an upcoming Finance Bill’. Questions on the change should be emailed to retainedeulaw.financebill@hmrc.gov.uk.
The importance of the measure can be illustrated by the Upper Tribunal (UT) decision in Impact Contracting Solutions Limited v HMRC [2023] UKUT 215 (TCC). The UT decided that HMRC was entitled to rely on the principle of EU law that prevents abuse of the VAT system to cancel the VAT registration of the appellant company. The tribunal noted the importance of that principle of EU law in tackling VAT fraud. Footnote 4 to the decision explains that the tribunal did not consider what effect, if any, REULA 2023 ss 3 and 4 would have because those sections do not apply to anything occurring before 31 December 2023.
