Question proposed, That the clause stand part of the Bill.

With this it will be convenient to discuss the following:

That schedule 27 be the Twenty-seventh schedule to the Bill.

I hope, as with other clauses, that consideration of this clause will not take too long. Clause 201 and schedule 27 would amend the VAT Act 1994 from 1 December 2012, by inserting a new schedule 1A, to change the rules for determining when a business that makes taxable supplies in the UK but has no establishment here has to register for VAT. Non-UK established businesses would no longer be able to benefit from the UK VAT registration threshold. The clause would also make consequential changes to other parts of the VAT Act 1994 and the Finance Act 2008.

I understand that the various paragraphs and schedules in relation to this matter have been put forward to bring UK law into line with the judgment of the Court of Justice of the European Union in relation to VAT. In that context, we will not oppose the clause. I have one eye on the clock and I assume that the Minister will be able to respond before the Committee has to adjourn.

I am sorry to delay the Minister, but I have some quick comments. This is one of those European Court cases that has produced a rather strange verdict. The impact means that very small businesses that operate in the UK with tiny amounts of turnover will now in theory be meant to register for VAT, when they probably would not have to register in their home countries, and would not register here if they were based here. That creates a perverse situation where a window cleaner from Ireland who pops over to clean the windows of a few friends in Northern Ireland and gets paid for that will in theory be committing an offence by not registering for VAT.

I would like the Minister to set out whether there is any realistic way that that can be enforced. How will we be able to catch all those people who are engaging in tiny amounts of trade? Is there really any gain from the measure? Will the cost not wholly outweigh any VAT that might be collected? This is just another example of  the EU forcing us to impose on small businesses ridiculous regulations that cannot possibly be complied with, rather than focus on the large businesses that ought to be the scope.

Clause 201 introduces schedule 27. Schedule 27 will make changes from 1 December 2012, to limit the UK VAT registration threshold to businesses that are established in the UK. That means that non-UK established businesses will have to register for VAT in the UK, even if their taxable turnover is below the UK’s domestic VAT registration threshold.

The change needs to be made following a judgment of the Court of Justice of the European Union in the Schmelz case, in which it ruled that businesses without an establishment in a member state are prohibited from benefiting from that state’s domestic VAT threshold. The majority of EU member states require non-established businesses to register for VAT, regardless of the value of  taxable supplies made in that member state. The change brings the UK into line with other member states that have no registration threshold for non-established businesses. Although tax receipts as a consequence of the changes are expected to be small, implementation costs are also expected to be negligible.

In conclusion, the clause and schedule introduce a limit to the UK VAT registration threshold to businesses that are established in the UK. That will reduce competition to UK businesses from unregistered businesses based overseas.

Question put and agreed to.

Clause 201 accordingly ordered to stand part of the Bill.

Schedule 27 agreed to.

Ordered, That further consideration be now adjourned. —(Greg Hands.)

Adjourned till this day at One o’clock.