VAT and abuse of rights
Produced in partnership with Martin Shah and Gary Barnett of Simmons & Simmons LLP
VAT and abuse of rights

The following Tax guidance note Produced in partnership with Martin Shah and Gary Barnett of Simmons & Simmons LLP provides comprehensive and up to date legal information covering:

  • VAT and abuse of rights
  • The Halifax case
  • Further Court of Justice decisions
  • Abuse of rights in practice
  • Economic reality
  • Where are we now?

Brexit: As of exit day (31 January 2020) the UK is no longer an EU Member State. However, in accordance with the Withdrawal Agreement, the UK has entered an implementation period, during which it continues to be subject to EU law. The European Union (Withdrawal) Act 2018 captures EU-derived rights and legislation the UK government intends to retain in UK law once the implementation period comes to an end, while the Taxation (Cross-border Trade) Act 2018 contains specific provisions on the continuing relevance of EU law to the UK’s VAT rules. Section 42(4) expressly provides that the Halifax principle continues to be relevant, even after the implementation period, for the purposes of VAT law. For further guidance, see Practice Notes: Brexit—UK tax consequences, Brexit—introduction to the Withdrawal Agreementand News Analysis: Retained EU law―a practical guide.

Since VAT is a European tax, governed by EU law principles, any measures bearing on tax avoidance must arise from and be compatible with those principles. Accordingly, the UK’s domestic Ramsay principle has not been applied in the context of VAT. (For more information on Ramsay, see Practice Notes: Ramsay as a guide to statutory construction and Ramsay—reality and legal form). Instead, the EU Court of Justice has found that the principle of abuse of rights (or abuse of law) can be applied in the field