Opinion Former Article

Customs law redraft and excessive ministerial powers prompt Institute concern

The Government’s decision to hastily redraft UK Customs law ahead of Brexit will lead to unnecessary uncertainty for business and runs counter to the Government’s stated policy of simply incorporating existing EU law into UK law ahead of our departure from the EU, argues the Chartered Institute of Taxation (CIOT).

The CIOT is also expressing concern about the “unprecedented power” being granted to ministers to create new Customs and tax legislation with minimal parliamentary oversight not only at Brexit but far into the future.

The Institute believes that neither approach is necessary to implement Brexit and that, by mirroring the approach of the EU (Withdrawal) Bill and simply giving effect to the EU’s Union Customs Code (plus a limited number of amendments required to reflect the UK’s departure from the EU) as the starting point for a post-Brexit Customs system, a great deal of uncertainty and possible litigation could be avoided.

The CIOT has set out its views in a submission sent to ministers and MPs considering the Taxation (Cross-border Trade) Bill (sometimes known as the ‘Customs Bill’, although its scope extends to VAT and excise duties too), which began its committee stage this week.

On the Government’s redraft of the Customs Code, Alan McLintock, Chair of CIOT’s Indirect Taxes Sub-committee, said:

“The Government’s stated aim with the Brexit legislative process is to take a snapshot of the body of EU law and ensure that, wherever possible, the same rules and laws will apply in the UK the day after Brexit as they did before. The UK Parliament will then be free to amend these laws going forward in the usual way. This is a sensible approach.  But the Government’s approach to drafting this law is at odds with this.

“The CIOT’s understanding is that HMRC intend to completely redraft the Union Customs Code, even though the meaning and intent of the redrafted legislation is intended to largely reflect the existing code. We fear that the use of different phrases and words will immediately open the door to different interpretations and lessen the reliance taxpayers can place on existing Customs case law. This has happened in the past in other areas when draftsmen have tried to restate in different language provisions which it is their policy intention to adopt.

“Given the time constraints on agreeing a Brexit deal with the EU and the need to give businesses greater certainty, it would be better for the Government to incorporate the existing EU Union Customs Code into UK law with specific, clearly identified changes being made where necessary, rather than attempt the feat of creating a completely different style of legislation, intended to say much the same thing, from scratch.”

In its submission the CIOT also raises concerns about the Bill’s delegation of wide-ranging powers to ministers to set Customs rules and rates using secondary legislation (regulations, which cannot be amended during their passage through Parliament). Most worryingly the Bill contains a number of so-called ‘Henry VIII clauses’ where power is given to ministers to use secondary legislation to amend existing primary legislation.2

Alan McLintock commented:

“The Bill gives the Secretary of State and the Treasury unprecedented power to create tax legislation with very limited opportunity for scrutiny. The powers being created by the Bill and delegated to Ministers are extraordinary and of deep concern to us.
“This is not limited to Customs. Clause 42 of the Bill disapplies EU VAT laws. Again, this is out of line with the Government’s stated intention to have the same rules apply the day after Brexit as apply the day before. Again, there are wide powers given to the Treasury to create new regulations without the need for any form of parliamentary approval before they take effect.

“It is worth emphasising that the powers created by this Bill are permanent. In decades to come, when Brexit is a distant memory, ministers will retain the powers to rewrite virtually every aspect of the UK’s Customs regime without any need for recourse to primary legislation. It is hard to justify this. The main pillars of all the other elements of the UK tax system require an Act of Parliament to change them. Why not Customs?”

In its submission the CIOT also:

·         Strongly endorses the need for a transitional period as close as possible to the status quo as the only realistic way for business, their advisers and government departments to cope with the volume and complexity of changes because of Brexit
·         Expresses concern about the combined impact and timing of the changes for the Indirect Tax sector with Making Tax Digital (MTD) and Brexit both planned for March/April 2019. Businesses will be faced with too many changes simultaneously and the Government should consider relaxing the MTD timetable to reduce the impact on businesses at this critical time;
·         Argues for a ‘light’ regulatory touch to ease the many SMEs who have never prepared documents for a Customs exit or entry clearance;
·         Urges the Government to follow through on the Autumn Budget 2017 promise that it will recognise the importance of postponed accounting arrangements;3
·         Emphasises the need for HMRC to get the substantial extra resources they need to cope with Brexit. Post Brexit the volume of declarations required annually is expected to rise from 50 million to 300 million declarations. A successful and timely delivery of HMRC’s new Customs Declaration Service (CDS) is critical for a workable transition from the Union Customs Code.

Notes for editors

1.       The CIOT’s submission can be read here.

2.       Delegated or secondary legislation allows the Government to make changes to a law without needing to pass an act of Parliament. This occurs when primary legislation (an act of Parliament) specifies that particular changes to the law may be made in this way in future. While primary legislation is usually subject to line by line debate in Parliament (usually both Houses, though money bills are not considered in detail by the Lords) and frequently gets amended during its passage, secondary legislation is unamendable during its passage through Parliament and usually only subject to cursory examination at best. Most secondary legislation is not even debated in Parliament.

3.       Currently EU imports (known as ‘acquisitions’) are generally cash flow neutral and are reported by businesses via a self assessed VAT return as nothing more than an accounting transaction. This is known as ‘postponed accounting’. The Bill will abolish such treatment. Instead, it states that all goods brought into the UK will be subject to import VAT. This is a significant shift for business in terms of cash flow, system, processes, supply chain efficiency etc. Cross border movement of goods will require import VAT to be paid and import declarations will need to be made, typically import VAT can then be reclaimed, so businesses will need to obtain the relevant evidence in order to secure a refund – unless simplifications are in place. The reality of this is cost and time – both financially and administratively.

4.       The Chartered Institute of Taxation (CIOT)

The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.

The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.

The CIOT’s 18,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.

Contact: Hamant Verma, External Relations Officer, 0207 340 2702 HVerma@ciot.org.uk (Out of hours contact: George Crozier, 07740 477 374)

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