Policy paper

Explanatory note (accessible version)

Published 20 October 2023

Clause 1: Interpretation of VAT and excise law

Summary

1.This measure clarifies how value added tax (VAT) and excise legislation should be interpreted in the light of changes made by the Retained EU Law (Revocation and Reform) Act 2023 (REULA 2023). It sits alongside amendments made by REULA 2023 to the European Withdrawal Act 2018 (EUWA 2018) and so will have effect from the commencement of those amendments (expected to be at the end of 2023).

2.REULA 2023 ends the supremacy and special status afforded to retained European Union law (REUL) in the United Kingdom (UK). In relation to VAT and excise, this measure confirms that it will no longer be possible for any part of any UK Act of Parliament or subordinate legislation to be quashed or disapplied on the basis it was incompatible with EU law. It also ensures that the rule known as the principle of consistent interpretation continues to apply so UK VAT and excise legislation continues to be interpreted as Parliament intended, drawing on rights and principles that currently apply in interpreting UK law.

3.This legislation ensures the stability of the VAT and excise regimes and provides legal certainty for business following the changes in the REUL Act taking effect. It mitigates the risk of re-litigating settled interpretation of UK law, protecting billions of pounds of Exchequer revenue — VAT and excise duty (on alcohol, tobacco and hydrocarbon oil) raise over £200 billion of revenue per year.

Details of the clause

4.Subsection (1) sets out that the clause makes provision as to how EUWA 2018 as amended by REULA 2023 is to apply for the sole purpose of interpreting VAT and excise legislation.

5.Subsection (2) states that section 4 EUWA 2018 (retained EU rights, powers, liabilities) continues to have effect in interpreting VAT and excise legislation.

6.Subsection (3) excepts Articles 110 and 111 of the Treaty on the Functioning of the European Union (which relate to internal taxation on products) from applying to the interpretation of VAT and excise legislation.

7.Subsection (4) ensures that, as is the case for other domestic law in consequence of the REULA 2023, it will no longer be possible for UK VAT and excise legislation to be quashed or disapplied on the basis that it was incompatible with REUL or assimilated law. There are no longer any circumstances in which a provision of an Act of Parliament or subordinate legislation dealing with VAT or excise can be struck down on the basis that it is incompatible with REUL or assimilated law.

8.Subsection (4), read with subsection 6(b) also provides that, the rule known as the principle of consistent interpretation remains applicable, solely for the purpose of interpreting VAT and excise legislation. It also provides that, consistent with the ending of EU supremacy, Acts of Parliament or subordinate legislation passed or made after the transitional period ended (11pm on 31 December 2020) are to be interpreted in the normal, domestic way, unless the new legislation amends earlier legislation and the legislature intends for the rule of consistent interpretation to apply to the provision as amended.

9.Subsection (5) provides that retained principles of EU law are still relevant solely for the limited purpose of interpreting VAT and excise legislation. However, this is subject to other provisions made by the REUL Act, in particular, in respect of the changes to the test for higher courts to depart from retained EU case law.

10.Subsection (6) provides that for the purpose of this section:

(a) ‘duty of excise’ means duties of excise charged on alcohol, tobacco and fuel.

(b) the ‘superseded provisions’ which are referred to in subsection (4) (and which will continue to apply for the purpose of interpreting VAT and excise law) are section 5(1) to (3) of EUWA 2018 as they had effect before their repeal under section 3(3)(a)(i) of REULA 2023.

(c) references to ‘retained general principles of EU law’ is to that term as defined in EUWA 2018 (see section 6(7)) before the REULA2023 changes take effect.

11.Subsection (7) states that this clause has to be read alongside sections 42 and 47 of the Taxation (Cross-border Trade) Act 2018 which also make provision about REUL in relation to VAT and excise and which continue to have effect.

Background note

12.REULA 2023 ends the supremacy and special status afforded to REUL in the UK. This measure confirms that, in relation to VAT and excise law, it will no longer be possible for any UK Act of Parliament or domestic subordinate legislation to be quashed or disapplied on the basis that it was incompatible with REUL or assimilated law. It also confirms that the government is taking a bespoke approach in relation to UK VAT and excise law so that it continues to be interpreted as Parliament intended, drawing on a number of rights and principles that currently apply in interpreting UK law. This measure mitigates the risk of re-litigating settled interpretation of UK law, directly relevant to the collection of billions of pounds of revenue — VAT and excise duty from alcohol, tobacco and hydrocarbon oil raise over £200 billion of revenue per year. It ensures stability of the regimes and provides legal certainty for business following the changes made by REULA 2023 taking effect.

13.REUL is European Union (EU) legislation (and EU derived domestic legislation) that continued to apply in the UK after the UK’s exit from the EU. It was introduced as a temporary measure by EUWA 2018 to ensure legal continuity. REULA 2023 introduces provisions to allow for the amendment of REUL and to remove the special status it has in the UK legal system from the end of 2023.

14.If you have any questions about this change, or comments on the legislation, please send them by email to [email protected].