Draft Finance Bill legislation: VAT & Excise Update

Treasury written statement – made at on 20 October 2023.

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Photo of Victoria Atkins Victoria Atkins The Financial Secretary to the Treasury

The government is committed to taking full advantage of the opportunities available following EU exit to improve the tax system and has made strong progress in removing, replacing and improving retained EU tax law. This includes disapplying direct EU regulations in relation to customs, VAT and excise and introducing a UK tariff and domestic customs regime, including a range of easements and facilitations that were not available under EU rules.

The government has also introduced a number of other reforms following EU exit, including: revising and modernising the VAT rules for the importation of low value parcels; changing the rules of duty free and tax free shopping; reforming the rules on VAT on cross-border financial services; introducing a zero rate of VAT for women’s period products; expanding the VAT relief for the installation of energy-saving materials and introducing a temporary zero rate; and overhauling the UK’s alcohol duty regime to radically reform the way duty is charged on alcohol, the biggest change in 140 years.

The government remains committed to embedding this approach and continuing to take advantage of the opportunities provided by EU exit to reform and improve the tax system through the established Finance Bill and tax policy-making process. For example, Spring Budget 2023 announced that the government would continue discussions with interested stakeholders on reform of the VAT rules on fund management and possible reforms to simplify the VAT treatment of financial services, with the aim of reducing inconsistencies and providing businesses with greater clarity and legal certainty. On 18 July 2023, the government published a consultation on legislative reforms to modernise the legislation that underpins the VAT treatment of certain wholesale commodity transactions. This consultation closed on 12 September 2023 and the government is now considering the responses.

Building on this progress, and in line with the Tax Policy Making framework, the government is publishing draft legislation in relation to retained EU law for VAT and excise ahead of potential inclusion in the next Finance Bill. While the final contents of the next Finance Bill will be a decision for the Chancellor, the draft legislation is being published to seek stakeholder views at this stage. This allows for technical consultation and provides taxpayers with predictability over future tax policy changes.

This legislation 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 EU law in the UK. In relation to VAT and excise, the government confirms that 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 EU law. ​​​As previously announced, 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 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 from alcohol, tobacco and hydrocarbon oil raise over £200 billion of revenue per year.

The draft legislation is accompanied by a Tax Information and Impact Note and an Explanatory Note. The documentation has been placed in the Libraries of the House and can be found at: