Most people think Brexit cut the UK off from EU VAT law in 2021. But the reality is more complex—British courts are still applying EU VAT principles to today’s disputes.
In this episode, Paweł Mikuła speaks with Fabian Barth, solicitor qualified in England, Wales, and Ireland, and expert in EU and UK VAT law who closely follows case law across European jurisdictions. Together, they discuss how EU VAT concepts remain embedded in the UK legal system and under what circumstances British judges may (or may not) depart from EU norms, principles and rules.
This episode is particularly relevant for VAT professionals advising on EU–UK cross-border transactions, indirect tax managers with responsibilities in the UK, as well as anyone interested in the evolving relationship between UK and EU law.
See more on the topic in the publications by Fabian here:
https://www.taxjournal.com/articles/is-direct-effect-in-vat-still-alive-in-2024-
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This article summarizes a discussion with tax law expert Leopoldo Parada and does not constitute a sourced academic paper. The analysis presented reflects the conversation’s key insights rather than comprehensive research.
EU VAT Law in the UK After Brexit: A Legal Journey
Introduction
This article covers a podcast discussion between Paweł Mikuła, and Fabian Barth, a solicitor in England, Wales, and Ireland who specializes in EU and UK VAT law. They discuss how European Union VAT law continues to apply in the United Kingdom after Brexit.
Background: VAT Law Before Brexit
Before 2021, the UK applied EU VAT law through a domestic law called the European Communities Act from 1972. This Act gave effect to EU law in the UK legal system. According to Fabian, the UK courts were willing to go quite far in applying EU law correctly. They used consistent interpretation and were ready to stretch domestic law when necessary to give effect to EU law.
The entire body of EU VAT law applied in the UK before Brexit. This included the VAT Directive, the Implementing Regulation, case law from the Court of Justice of the European Union, and general principles of EU law.
The Brexit Timeline
January 31, 2020: Formal Exit
The UK formally stopped being a member of the European Union on January 31, 2020. However, there was a transition period of 11 months. During this transition period from February 2020 to December 2020, all EU law obligations and rights still applied to the UK. The UK was treated as if it was still a member state for legal purposes. UK courts could still make references to the Court of Justice of the European Union.
January 1, 2021: The Snapshot Approach
On January 1, 2021, the UK became a third country from the EU perspective. To avoid leaving gaps in domestic law, the UK Parliament took a snapshot of EU law as it existed on December 31, 2020. Everything in EU law that existed until this day continued to be enforced and applied in the UK.
The principle of supremacy of EU law continued to apply to this preserved body of law. Judgments from the Court of Justice that were released until December 31, 2020, continued to be binding in UK domestic law.
How EU VAT Law Applied After Brexit (2021-2024)
The VAT Directive
Even though the withdrawal act did not specifically say that directives are preserved, the directive continued to apply because of the retained principle of supremacy and the retained rights and obligations. Fabian gave an example of a case about insurance intermediaries where a UK tribunal found that Article 168 of the VAT directive had direct effect even for transactions that occurred in 2021.
The Implementing Regulation
The Implementing Regulation was technically repealed in one provision but another provision said it continues to be relevant for interpreting VAT law. The clarifications in the Implementing Regulation, such as those about fixed establishments, can still be used in UK VAT law.
Case Law
The case law of the Court of Justice up to December 31, 2020, continues to be binding. The Court of Appeal and the Supreme Court were given the power to depart from that case law if they consider it right to do so, but they need to apply the same test as when departing from their own case law, which is very difficult.
For Court of Justice cases released from January 1, 2021, onwards, UK courts may have regard to such case law. Fabian mentioned that courts mostly do have regard to post-Brexit European case law. He was aware of only one example in VAT where the Court of Appeal chose not to have regard to a post-Brexit judgment.
General Principles
General principles of EU law were also preserved, but with a carve-out. The withdrawal act says there shall be no right of action in domestic law based on a failure to comply with EU law general principles. HMRC has taken the position that certain claims, like Reemtsma claims, are no longer available, though this has not been decided by courts post-Brexit yet.
January 1, 2024: The Revocation Act
From January 1, 2024, a new law called the Retained EU Law Revocation and Reform Act came into force. This law revoked significant parts of EU law in most fields. However, VAT and excise duties were given special treatment with significant carve-outs to this revocation.
For the purpose of interpreting VAT law, all the EU law that was relevant before January 1, 2024, continues to be relevant. The supremacy of EU law has been retained for interpreting VAT law. However, the legislation says you cannot quash or disapply domestic legislation based on EU law, based on the directive, or based on general principles.
Current Status of EU VAT Concepts in UK Law
Direct Effect
The question of whether direct effect still applies is not settled. The majority view, including HMRC’s view, is that it is no longer possible to apply direct effect. However, Fabian has written articles arguing that direct effect might still be preserved based on specific wording in the legislation.
Formal Obligations
The concept that formal obligations can be overlooked if substantive conditions are met still applies in principle because that case law is binding. In practice, HMRC always has the power to consider alternative evidence, so this was never as big an issue in UK law.
Composite Supplies
The European Court of Justice case law on composite supplies applies in the UK. Much of this case law has been summarized in domestic cases. Where it becomes less clear is if European law evolves in a direction that cannot currently be foreseen.
Services Related to Real Property
The criteria in the Implementing Regulation for assessing whether services are related to real property remain in force and can be applied.
Principle of Effectiveness
The principle of effectiveness could still be invoked for the purpose of interpretation but probably not to quash domestic law.
Changes Since Brexit
One major change mentioned was that the VAT exemption on private schools has been removed, so private schools will be taxable in the future. This is a choice of domestic law post-Brexit that Parliament is free to make. Otherwise, the general structure and most principles in VAT have not been touched yet post-Brexit.
Advantages and Disadvantages for Practitioners
Potential Advantages
Fabian suggested that in the medium term, UK VAT law might become more consistent and less erratic than Court of Justice case law. This is because the UK has one Supreme Court with a small number of judges, and the common law system with its precedent system means courts are strongly bound by what has been said before. UK judgments also tend to be significantly longer with more detailed reasoning, making it easier to follow the thought process of the judge.
Disadvantages
The downside is that the UK will have less case law overall. A country the size of the UK will produce less case law than the entire European Union.
Summary
Although the UK left the EU, there is significant space to look into EU VAT law to interpret UK law. A VAT director of a group sitting in France could assume that the general logic from Court of Justice case law or EU VAT law has significance in the UK. Much of EU VAT law continues to apply, and much will still be familiar to EU practitioners. How much UK VAT law ultimately diverges over time depends on how eager the government is to legislate in the field of VAT and what the higher courts decide to do with European case law.