Interpretation of VAT and excise law
Published 20 October 2023
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Who is likely to be affected
Businesses and other organisations that are subject to value added tax (VAT) or excise duty (in respect of alcohol, tobacco and hydrocarbon oil).
General description of the measure
This measure clarifies how VAT and excise legislation should be interpreted in the light of changes made by the Retained EU Law (Revocation and Reform) Act 2023 (REUL Act).
The REUL Act ends the supremacy and special status afforded to retained European Union (EU) law 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 that it was incompatible with retained EU law (REUL). 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 rights and principles that currently apply in interpreting UK law. This measure protects billions of pounds of Exchequer revenue and provides legal certainty and stability for businesses.
Policy objective
This measure 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 revenue from alcohol, tobacco and hydrocarbon oil raise over £200 billion of revenue per year.
Background to the measure
REUL is 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 the European Union (Withdrawal) Act 2018 (EUWA 2018) to ensure legal continuity.
The REUL Act 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.
This measure clarifies how VAT and excise law should continue to be interpreted and therefore ensures the VAT and excise regimes continue to operate as intended.
Detailed proposal
Operative date
The measure will have effect from the end of 2023.
Current law
Under EUWA 2018 various concepts of EU law continue to be recognised and enforced in UK domestic law. This includes the continued application of:
- EU-derived subordinate legislation (section 2) and retained direct EU legislation (section 3)
- EU rights, powers, liabilities, obligations, restrictions, remedies and procedures (section 4)
- the supremacy of EU law (section 5(3))
- decisions of the European Court in binding lower courts (section 6(3)(a), (4) and (5A))
- general principles of EU law (section 6(3)(a))
Changes made by the REUL Act
With effect from the end of 2023 the REUL Act will make provision (including by amending EUWA 2018) to:
- revoke EU-derived subordinate legislation and retained direct EU legislation listed in Schedule 1 (section 1 and Schedule 1)
- revoke retained EU rights, powers, liabilities (section 2)
- abolish the supremacy of EU law (section 3)
- abolish the general principles of EU law (section 4)
- convert REUL to ‘assimilated law’ (section 5)
- make it easier for courts to depart from decisions of the European Court (section 6)
The REUL Act also contains powers to modify, restate, revoke, replace or update REUL and assimilated law (sections 9 to 15).
Proposed revisions
This measure confirms that, in relation to VAT and excise law, in line with the REUL Act, 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.
Summary of impacts
Exchequer impact (£million)
| 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 | 2028 to 2029 |
|---|---|---|---|---|---|
| Nil | Nil | Nil | Nil | Nil | Nil |
This measure is not expected to have an Exchequer impact.
Economic impact
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
It is not anticipated that there will be impacts on individuals, households and families as this measure provides legal certainty and ensures that the stability of the VAT and excise systems is maintained.
Equalities impacts
It is not anticipated that there will be impacts on those in groups sharing protected characteristics by this measure.
Impact on business including civil society organisations
It is not anticipated that there will be impacts on businesses or civil society organisations as this measure provides legal certainty and ensures that the stability of the VAT and excise systems is maintained.
Operational impact (£million) (HMRC or other)
HMRC will not incur any operational costs implementing this change.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be kept under review through communication with affected taxpayer groups.
Further advice
If you have any questions about this change, please send them by email to [email protected].