Since the general election in December, Parliament has now voted in favour of the European Union (Withdrawal Agreement) Bill (EUWA) , which enacts the Government’s agreement with the European Union (EU) on the terms of the UK’s departure from the EU. While much remains to be decided about the UK’s future relationship with the EU after Brexit, the picture is becoming clearer and it now seems certain that the UK will leave the EU on 31 January 2020. However, practical changes to VAT and customs processes are not expected to take effect until the conclusion of the transition period, which is currently scheduled to end at 11pm on 31 December 2020.
Late last year HMRC released information on the implementation of the EU’s four quick fixes, which the UK is obliged to implement with effect from 1 January 2020 and that must be applied until the end of the transition period. These affect the VAT treatment of intra-EU movements of goods in four situations. The rules on chain transactions (where goods pass between more than two parties in different member states ) have been standardised to ensure intermediary suppliers’ responsibilities are clear. There are two sets of requirements to prove a supplier’s eligibility to treat sales as being zero-rated. Finally, the rules on call-off stock have been amended (and standardised) which means that the application of these rules should be easier to plan for.
Although the withdrawal agreement with the EU allows for the transition period to be extended to the end of 2021 or 2022, EUWA prohibits UK ministers from agreeing an extension beyond 31 December 2020. This does not give long for the UK and EU to agree their future relationship, including a trade deal, so businesses should continue to plan for a disruptive Brexit at the end of 2020. See details of the key planning points in VAT, customs duty and trade in a no-deal Brexit.
Case law precedent
It is also possible that EUWA will change the UK’s expected approach to existing case law of the Court of Justice of the European Union (CJEU) after Brexit. The UK is currently required to follow CJEU case law when interpreting VAT and customs rules and, in the withdrawal agreement, agreed to be bound by CJEU judgments issued before the end of the transition period. The previous government stated that CJEU case law in existence at the end of the transition period would be given equivalent precedent status to UK Supreme Court case law after Brexit, meaning it could only be overridden by the Supreme Court in exceptional circumstances or if the UK government changed the underlying UK law.
However, the new withdrawal bill empowers the Government to give UK courts and tribunals discretion to depart from existing CJEU case law after the end of the transition period. The detail of such powers of discretion must be set out in regulations, which must be published by 31 December 2020 , so it is not yet known how much latitude the UK courts will have to ignore pre-Brexit decisions. However, depending on the extent of these powers, they could bring great uncertainty to a wide range of businesses, both cross-border and domestic, whose VAT and customs positions are underpinned by EU case law precedents. Therefore, all UK businesses should watch closely for further developments.