Retained EU law (Revocation and Reform) Bill and UK tax

The UK government has introduced a new Bill, the Retained EU Law (Revocation and Reform) Bill, which will end the status of retained EU law from the end of 2023 and replace it with the concept of “assimilated law”.

The new Bill was published by the Department for Business, Energy & Industrial Strategy on 22 September 2022 along with an explanation of its purpose. In particular, the government has pointed out that the concept of “retained EU law” was never intended to sit on the statute book indefinitely. The government judges that the time is now right to end the special status of retained EU Law on 31 December 2023. The Bill will abolish this special status and will enable the government to amend more easily, repeal and replace retained EU Law. In essence, retained EU law will either be removed from or “assimilated” into UK law by 31 December 2023, subject to review and extension until 2026.

Background

In September 2021, the government commenced a review into the substance and status of retained EU law. This resulted in the publication of the retained EU law dashboard, which is a catalogue of over 2,400 pieces of retained EU law on 22 June 2022. Having already identified the different pieces of retained EU law, the Bill now enables the government to decide how to deal with it, including determining what needs to be put onto a more permanent statutory footing for the future.

Broadly speaking, there are three categories of retained EU law created by the EU (Withdrawal) Act 2018:

• EU derived domestic legislation (s.2)
• Direct EU legislation (s.3)
• Other rights and obligations arising from s.2(1) of the European Community Act (s.4).

In addition, whilst general principles of EU law do not provide a separate right of action following EU exit, they are to be taken into account when interpreting retained EU law, as is pre-exit EU case law.

Sunsetting retained EU law

The Bill provides for the expiry of the majority of retained EU law with effect from 31 December 2023. All retained EU law contained in domestic secondary legislation and retained direct EU legislation will expire on this date, unless otherwise preserved. The Bill will also provide for the abolition of general principles of EU law from the end of 2023. Any retained EU law that remains in force after the sunset date will be assimilated in the domestic statute book, by the removal of “the special EU law features previously attached to it”. This means that the principle of the supremacy of EU law, general principles of EU law, and directly effective EU rights will also end on 31 December 2023.

Before that date, the government will determine which retained EU law will expire and which needs to be preserved and incorporated into domestic law. The Bill includes the possibility of an extension for the sunset of specified pieces of retained EU law until 2026 should the government require additional time to assess whether some retained EU law should be preserved.

Following the removal of the special features of EU law from retained EU law on 31 December 2023, any retained EU law that is preserved will become “assimilated law” to reflect that EU interpretive features no longer apply.

Tax law as retained EU law

In relation to tax, the government website makes it clear that all required legislation relating to tax and retained EU law will be made via the Finance Bill (or subordinate tax legislation) .The government will also introduce a “bespoke legislative approach” for retained EU law concerning VAT, excise and customs duty in a future Finance Bill. This approach will revoke any remaining retained direct EU law that the government did not repeal in the Taxation (Cross-border) Trade Act 2018 and make clear that UK Acts of Parliament and subordinate legislation are supreme.

The government’s EU law dashboard lists 228 separate legislative measures under the responsibility of HMRC as retained EU law. These include both direct and indirect tax measures.

The dashboard lists the VAT Act 1994, VAT Regulations 1995 and “[o]ther VAT SIs not amended as part of EU exit” (meaning the 228 number may be a significant underestimate in practice). VAT is in essence entirely derived from the EU VAT Directives, however, broadly speaking, the UK has already revoked all previous EU customs law in the UK and replaced it with domestic customs rules. As such, any VAT regulations will, in principle, expire from 31 December 2023 unless they are preserved in the meantime or unless special provision is made to extend their application until 2026. This will, therefore, be an important area for practitioners to watch.

As regards the VAT Act 1994 itself, it appears that this would simply continue as “assimilated law” but without the requirement to interpret its provisions in line with general principles of EU as before.

There are also a number of general principles of EU law of relevance to the interpretation of UK VAT law, such as legal certainty, proportionality etc. It remains to be seen whether the government decides that any of these should be retained as part of assimilated law. However, the Taxation (Cross-border) Trade Act 2018 did include a number of specific provisions. Most notably in a VAT context, the government has already sought to preserve the operation of the principle of abuse of law by s.42(4) which provides that 'the principle of EU law preventing the abuse of the VAT system (see, for example, the cases of Halifax and Kittel) continues to be relevant, in accordance with that Act, for the purposes of the law relating to value added tax'.

Other aspects of the Bill

Other important aspects of the new Bill include the following:

• Ending of Supremacy of retained EU law from UK law by 2023: currently, retained direct EU legislation takes priority over domestic UK legislation passed prior to the end of the transition period when they are incompatible. The Bill will reverse this order of priority. Where it is necessary to preserve the current hierarchy between domestic and EU legislation in specific circumstances, the Bill provides a power to amend the new order of priority to retain particular legislative effects.

• Facilitating Departures from Retained EU Case Law: The Bill will provide domestic courts with greater discretion to depart from retained case law.

• Modification of Retained EU Legislation: The Bill will downgrade the status of retained direct EU legislation for the purposes of amendment. The Bill will also modify powers in other statutes, to facilitate their use to amend retained direct EU legislation in the same way they can be used on domestic secondary legislation. This will enable retained direct EU legislation to be amended more easily, with an appropriate level of scrutiny.

• Powers relating to Retained EU Law: The Bill will create powers to make secondary legislation so that retained EU law can be amended, repealed and replaced more easily. The Bill also takes powers to specify, after the sunset, the body of law that will continue to apply in place of retained EU law, and how it should be interpreted.