Taxation (Cross-border Trade) Bill

Explanatory Notes

Policy background

4 On 23 June 2016, the UK voted to leave the EU, and on 29 March 2017 the Prime Minister wrote to European Council President Donald Tusk to notify him of the UK’s intention to leave the EU.

5 Up until the UK leaves the EU, it will continue to be a member of the EU Customs Union and will continue to apply EU law on Customs, VAT and excise. The rules for the EU Customs Union are governed by EU law, with Customs policy being an exclusive competence of the EU. Membership of the EU Customs Union means that:

goods moving between the UK and other EU Member States are not subject to Customs duty, quotas or Customs processes (including the need to provide Customs declarations); and

Member States apply the EU’s Common External Tariff (i.e. the same rates of Customs duty) and its quotas and Customs processes to goods moving between the EU and non-EU countries. The EU negotiates trade agreements (including tariffs), investigates and implements trade remedy measures such as anti-dumping duties, and handles trade disputes on behalf of all Member States.

Relevant government publications

6 On 15 August 2017, the government published ‘Future Customs arrangements: a future partnership paper’ 1. This detailed the government’s aspirations for the UK’s future Customs arrangements as it leaves the EU and the EU Customs Union.

7 A subsequent White Paper (‘Legislating for the UK’s future Customs, VAT, and excise regimes’) published on 9 October 2017 set out the government’s approach to the Taxation (Cross-border Trade) Bill 2 . This White Paper explained how the current Customs, VAT and excise regimes operate, why the Bill is necessary, and what the Bill contains. It set out further detail of how the Bill will provide for certain negotiated outcomes, as well as a contingency scenario in which no agreement is reached.

8 A White Paper, titled ‘Preparing for our future UK trade policy’, was published by the Department for International Trade (DIT) on 9 October 2017 3 . This set out the initial steps that the government will take to build its own trade policy after the UK leaves the EU.

Contents of the Taxation (Cross-border Trade) Bill

Customs and the UK tariff

9 The Taxation (Cross-border Trade) Bill does not presuppose any particular outcome from the UK’s negotiations with the EU. In addition to legislating for a contingency scenario where the UK leaves the EU without a negotiated outcome, the Bill also provides for a range of negotiated outcomes, including an implementation period.

10 Responding to business representations, Parts 1 and 2 of the Bill, which provide for a new standalone Customs regime, are largely based on EU law, and it is the government’s intention that the UK’s Customs regime will continue to operate in much the same way as it does today following exit from the EU. However, depending on the outcome of the negotiations, traders that currently trade only with the EU may be subject to Customs declarations and Customs checks for the first time.

11 The Bill would allow for divergence from EU law where the government feels it is necessary to do so, or where it believes that there is a clear benefit to business to diverge from it and such divergence is consistent with whatever bilateral arrangements the government agrees with the EU.

12 The Bill will allow the government to create a standalone Customs regime by ensuring that, among other things:

the UK can charge Customs duty on goods (including on goods imported from the EU)

the UK can define how goods will be classified to establish the amount of Customs duty due (known as the nomenclature)

the UK can establish a new UK tariff and set out additional tariff-related provisions, for example the tariff applicable to developing countries (unilateral preferences)

the UK can set and vary rates of Customs duty, specify where goods are subject to quotas and where goods are relieved from duty

the UK can vary or suspend duty at import in certain circumstances

the UK can implement arrangements to establish a customs union between the UK and another territory or country

HMRC can request and collect tax-related information from declarants and store and share it as appropriate.

13 The Bill will allow the UK to accommodate the transition to a new regime by ensuring:

where appropriate, existing treatments of traders or goods (for example, existing authorisation or Customs status granted as a result of EU law) can continue under UK law

most tax-related negotiated outcomes and the smooth facilitation of trade can be accommodated

appropriate mechanisms are in place to transition existing trade remedy measures, where they are relevant to UK companies.

14 The Bill will also make provision for consequential amendments to be made to various UK Acts that relate to Customs duty, most significantly the Customs and Excise Management Act 1979 (CEMA), which will continue to form an important part of the Customs regime and will work alongside and in conjunction with the Taxation (Cross-border Trade) Bill.

15 There are connections between the Taxation (Cross-border Trade) Bill and the Trade Bill which will together ensure that the necessary tools are in place to deliver an independent trading framework for the UK outside of the EU.

16 Provisions made in the Taxation (Cross-border Trade) Bill will impact upon and be impacted by the UK’s future international trade policy in so far as this directly relates to the applicable rate of Customs duty. These include:

the basis of a new UK trade remedies framework that can be used to impose additional Customs duty in certain circumstances.

the ability to impose additional duty in the event of a dispute between the UK government and the government of another territory or country where authorised to do so by international law.

the creation of a unilateral trade preference scheme, which can be used to decrease the Customs duty paid on imports from developing countries.

17 The Trade Bill makes provisions relating to international trade which are not directly tax-related. It will, for example, provide:

for the UK to implement non-tariff obligations flowing from international trade agreements, including those flowing from transitionally adopted international trade agreements and the World Trade Organization (WTO) Government Procurement Agreement (GPA).

a new investigating authority, the Trade Remedies Authority, to deliver the UK’s trade remedies function.

18 Further details on trade related policy can be found in the publication ‘Preparing for our future UK Trade Policy’.

VAT and excise

19 The Bill will provide for amendment of existing VAT and excise legislation. It will provide for the EU concept of acquisition VAT (for business-to-business intra-EU movements) to be abolished so that import VAT is charged on all imports from outside the UK.

20 In addition, the Bill will allow the VAT and excise regimes to continue to function whatever the outcome of the negotiations. So, for example, the Bill will give the government:

the flexibility to give effect to an agreement with the EU on supplies or movements in progress on the day of EU exit and enable supplies or movements of goods and services by businesses and individuals to continue as freely as possible thereafter

the flexibility to deal with VAT on movements of goods and services between the UK and EU

the flexibility to allow HMRC to adapt IT systems, for example the Excise Movement and Control System, for UK internal excise duty suspended movements

the flexibility to vary the UK information sharing obligations to give effect to any new agreement about the continued exchange of information with EU Member States to tackle avoidance and evasion.

Delegated powers

21 In its White Paper, the government noted that for tax matters it is usual practice for primary legislation to set out a ‘framework’, and for secondary legislation to be used to set out rules concerning administration, collection and enforcement. This is the approach that the government will also be taking to the new Customs regime.

22 Delegated powers are included in the Bill to allow:

the government to make future amendments to the imposition, administration, collection and enforcement of Customs duty. This will allow the UK’s Customs regime to keep pace with future developments in trade, trader behaviour and international agreements. It will also allow the government to implement simplifications to the regime that it is not possible to implement immediately on EU exit

flexibility to make appropriate amendments to VAT and excise legislation so that the VAT and excise regimes continue to function after EU withdrawal, including ensuring the continued effective administration and collection of VAT and excise duties

the government to make appropriate amendments to primary legislation and use secondary legislation to implement negotiated agreements

23 Further details of these powers can be found in the ‘Commentary on provisions of Bill’ (below), and the Delegated Powers Letter which accompanies this Bill.

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Prepared 20th November 2017