Proposal for a COUNCIL IMPLEMENTING DECISION amending Implementing Decision (EU) 2021/512 authorising the United Kingdom to apply, in respect of Northern Ireland, a special measure derogating from Articles 16 and 168 of Directive 2006/112/EC on the common system of value added tax as regards an extension of the authorisation
Date: 2023-11-20
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Northern Ireland, United Kingdom, VAT, derogation from EU law, energy consumption, motor fuel, motor vehicle, tax relief

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   EUROPEAN COMMISSION  Brussels, 20.11.2023  COM(2023) 704 final 2023/0402 (NLE)  Proposal for a COUNCIL IMPLEMENTING DECISION amending Implementing Decision (EU) 2021/512 authorising the United Kingdom to apply, in respect of Northern Ireland, a special measure derogating from Articles 16 and 168 of Directive 2006/112/EC on the common system of value added tax as regards an extension of the authorisation  
 
EXPLANATORY MEMORANDUM 

Pursuant to Article 395(1) of Directive 2006/112/EC of 28 November 2006 on the common 
system of value added tax (hereafter ‘the VAT Directive’1), the Council, acting unanimously 
on  a  proposal  from  the  Commission,  may  authorise  any  Member  State  to  apply  special 
measures derogating from the provisions of that Directive in order to simplify the procedure 
for collecting VAT or to prevent certain forms of tax evasion or avoidance. 

The United Kingdom  has  left  the European Union (EU) on 31 January 2020. In accordance 
with the Withdrawal Agreement2, it is now a third country to the EU. 

As from 1 January 2021, the EU VAT legislation no longer applies to the United Kingdom. 
However, on the basis of the Protocol on Ireland/Northern Ireland3 (hereafter the ‘Protocol’), 
which  is  part  of  the  Withdrawal  Agreement,  Northern  Ireland  remains  under  the  EU  VAT 
legislation regarding goods with a view to avoid a hard border between Ireland and Northern 
Ireland.  For  services,  on  the  other  hand,  Northern  Ireland  is,  together  with  the  rest  of  the 
United Kingdom, treated as a third country. 

This inevitably leads to a dual or mixed VAT system in Northern Ireland whereby supplies, 
intra-Community acquisitions and importations of goods that are located in Northern Ireland, 
according to  the rules  on the place of taxable transactions laid down in Title V of the VAT 
Directive,  are  subject  to  the  harmonised  EU  rules,  while  supplies  of  services  made  in  that 
same territory are not subject to the EU VAT system. 

Therefore, to continue applying in Northern Ireland a special scheme on VAT, which provides 
for  flat-rate  measures  in  respect  of  non-deductible  value  added  tax  charged  on  fuel 
expenditure  in  company  cars,  which  deviates  from  the  general  rules  laid  down  in  the  VAT 
Directive,  the  granting  of  a  derogation  pursuant  to  Article  395(1)  of  the  VAT  Directive  is 
needed. 

By  letter  registered  with  the  Commission  on  13  July  2023,  the  United  Kingdom  requested 
authorisation to continue to apply a measure derogating from Articles 16 and 168 of the VAT 
Directive.  In  accordance  with  Article  395(2)  of  the  VAT  Directive,  the  Commission 
informed all Member States but Cyprus by letter dated 7 August 2023 of the request made by 
the United Kingdom. Cyprus was informed by letter dated 8 August 2023. On that same day, 
8 August 2023, the Commission notified the United Kingdom that it had all the information 
it considered necessary for appraisal of the request. 

1. 

• 

CONTEXT OF THE PROPOSAL 

Reasons for and objectives of the proposal 

Article  168  of  the  VAT  Directive  provides  that  a  taxable  person  is  entitled  to  deduct  VAT 
charged on purchases made for the purpose of his taxed transactions. Article 16 of the same 
Directive  requires  that  a self-supply  of  goods  occurs  when  a  taxable  person  diverts  goods 
forming  part  of  his  business  assets  to  private  use  or  for  that  of  his  staff  where  the  VAT  on 
those goods or the component parts thereof was wholly or partly deductible.  

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OJ L 347, 11.12.2006, p. 1. 
Council  agreement  on  the  withdrawal  of  the  United  Kingdom  of  Great  Britain  and  Northern  Ireland 
from  the  European  Union  and  the  European  Atomic  Energy  Community  (OJ  C384  I  of  12.11.2019, 
p. 1). 
OJ C384 I of 12.11.2019, p. 92. 

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In  the  case  of  company  cars,  partly  used  for  private  (non-business)  purposes,  it  is  often  a 
difficult matter to calculate and to tax expenditure related to the private use under the above-
mentioned rules. 

In  this  context,  the  United  Kingdom  has  operated  a  special  scheme  authorised  by  Council 
Decision  86/356/EEC  of  21  July  1986  authorising  the  application  of  flat-rate  measures  in 
respect  of  non-deductible  VAT  charged  on  fuel  expenditure  in  company  cars4,  which  was 
based on the engine capacity and fuel  type of the car. On the basis of the Protocol, the EU 
VAT legislation remains applicable in Northern Ireland with respect to the supply of  goods. 
By  Council  Implementing  Decision  (EU)  2021/5125,  the  United  Kingdom  in  respect  of 
Northern Ireland was authorised to apply a special measure derogating from Articles 16 and 
168 of Directive 2006/112/EC, which is set to expire on 31 December 2023. 

The United Kingdom included in its request an explanation on the functioning of the special 
scheme. This scheme combines various elements to calculate the private use charge on which 
VAT  is  due.  These  elements  are  the  fuel  consumption  per  kilometre,  which  is  calculated 
based on the CO2 emission ratings, the average private mileage  which is  determined on the 
basis of data from the Department for Transport’s National Travel Survey and the retail price 
of road fuel.  

The  special  scheme  is  optional  for  taxable  persons  who  may  instead  choose  not  to  recover 
VAT  on  their  fuel  or  recover  it  as  per  an  apportionment  method  of  calculation  based  on 
detailed mileage records. 

According  to  the  United  Kingdom,  this  scheme  has  proven  to  be  accurate  and  has  led  to  a 
substantial  simplification,  both  for  the  businesses  and  the  tax  administration.  The  United 
Kingdom  also  submits  that  it  provides  taxable  persons  with  legal  certainty  by  providing  a 
simplified method which can be used to account for VAT on private use of fuel and is in line 
with the general rules on deduction as laid down by the VAT Directive. 

On  this  basis,  the  United  Kingdom  in  respect  of  Northern  Ireland  has  requested  to  be 
authorised to continue the application of the derogation from 1 January 2024. The derogation 
should be limited in time to 31 December 2026, so that it can be assessed whether the special 
scheme is still a correct reflection of the overall apportionment between business and private 
use. 

• 

Consistency with existing policy provisions in the policy area 

Article 176 of the VAT Directive stipulates that the Council shall determine the expenditure 
in respect of which VAT is not deductible. Until then, it authorises Member States to maintain 
the exclusions provided for under their national laws on 1 January 1979. There are therefore a 
number of 'standstill' provisions restricting the right to deduct in relation to passenger cars.  

Notwithstanding previous initiatives to establish rules on which categories of expenditure may 
be  subject  to  a  restriction  on  the  right  to  deduct6,  such  special  scheme  is  appropriate  in  the 
awaiting of a harmonisation of these rules at EU level. 

OJ L 212, 2.8.1986, p. 35. 
OJ L 103, 24.3.2021, p. 4-5. 

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6  COM  (2004)  728  final  -  Proposal  for  a  Council  Directive  amending  Directive  77/388/EEC  with  a  view  to 
simplifying value added tax obligations (OJ C 24, 29.1.2005, p.10) withdrawn on 21 May 2014 (OJ C 153 21. 
05. 2014, p. 3)  

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2. 

• 

LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY 

Legal basis 

Article 395 of the VAT Directive. 

• 

Subsidiarity (for non-exclusive competence)  

Considering  the  provision  of  the  VAT  Directive  on  which  it  is  based,  the  subsidiarity 
principle is respected at the level of the VAT Directive.  

• 

Proportionality 

The Decision concerns an authorisation granted to the United Kingdom in respect of Northern 
Ireland upon its own request and does not constitute any obligation. 

Given the limited scope of the special scheme, it is proportionate to the aim pursued, i.e. to 
simplify  VAT  obligations  and  VAT  collection.  It  does  not  go  beyond  what  is  required  to 
simplify  VAT  obligations  and  VAT  collection  in  a  specific  sector.  The  scheme  remains 
optional for taxable persons. 

• 

Choice of the instrument 

The instrument proposed is a Council Implementing Decision. 

Under Article 395 of the VAT Directive, a derogation from the common VAT rules is only 
possible upon authorisation by the Council, which is acting unanimously on a proposal from 
the  Commission.  A  Council  Implementing  Decision  is  the  most  suitable  instrument  since  it 
can be addressed individually. 

3. 

• 

RESULTS 
CONSULTATIONS AND IMPACT ASSESSMENTS 

EX-POST 

EVALUATIONS, 

OF 

STAKEHOLDER 

Stakeholder consultations 

No stakeholder consultation has been conducted. The present proposal is based on a request 
made by the United Kingdom in the respect of Northern Ireland and concerns only Northern 
Ireland. 

• 

Collection and use of expertise 

There was no need for external expertise. 

• 

Impact assessment 

The proposed Decision aims at simplifying VAT collection and VAT obligations in relation to 
fuel expenditure for company cars partly used for non-business purposes and has therefore a 
potential positive impact. 

For  taxable  persons,  who  would  opt  for  this  system,  it  reduces  administrative  burdens  and 
compliance costs by removing the need to keep detailed mileage records on each company car 
for  VAT  purposes.  Such  record  keeping  requirements  are  likely  to  be  time  consuming  and 
often  impose  significant  administrative  burdens  for  relatively  small  amounts  of  tax.  It  is 
indicated that this option, thanks to  the simplification it offers,  avoids the pitfalls of having 
businesses  opting  out  of  their  recovery  right  of  VAT  on  fuel  used  for  business  purposes.  It 
was also indicated that the special measure provides taxable persons with legal certainty.  

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The  simplification  method  also  reduces  burdens  for  the  tax  authorities,  which  would 
otherwise be required to audit numerous individual cases. 

Nevertheless,  because  of  the  narrow  scope  of  the  derogation  and  the  limited  application  in 
time, the impact will in any case be limited. 

4. 

BUDGETARY IMPLICATIONS 

The measure will have no adverse impact on the Union's own resources accruing from VAT. 
In this context, it is reminded that, in accordance with the second paragraph of Article 8 of the 
Protocol, revenues resulting from transactions that are taxable in Northern Ireland shall not be 
remitted to the EU.  

5. 

• 

OTHER ELEMENTS 

Implementation plans and monitoring, evaluation and reporting arrangements 

The proposal includes a sunset clause;  an automatic time limit which is set at  31 December 
2026. 

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2023/0402 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

amending Implementing Decision (EU) 2021/512 authorising the United Kingdom to 
apply, in respect of Northern Ireland, a special measure derogating from Articles 16 and 
168 of Directive 2006/112/EC on the common system of value added tax as regards an 
extension of the authorisation 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty on the Functioning of the European Union,  

Having  regard  to  Council  Directive  2006/112/EC  of  28  November  2006  on  the  common 
system of value added tax1, and in particular Article 395(1), first subparagraph, thereof, 

Having regard to the proposal from the European Commission, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

(5) 

In accordance with Article 1 of Council Implementing Decision (EU) 2021/5122, the 
United  Kingdom  was  authorised  to  apply,  in  respect  of  Northern  Ireland,  until  31 
December 2023, a special  measure  derogating  from  Articles 16 and 168 of Directive 
2006/112/EC  in  order  to  fix,  on  a  flat-rate  basis,  the  proportion  of  VAT  relating  to 
expenditure on fuel used for private purposes in business cars (‘the special measure’).  

Article  168  of  Directive  2006/112/EC  provides  that  a  taxable  person  is  entitled  to 
deduct  VAT  charged  on  purchases  made  for  the  purpose  of  the  person’s  taxed 
transactions. However, Article 16 of that Directive requires the application by taxable 
persons of goods forming part of their business assets for their private use or for that 
of their staff to be treated as a supply of goods for consideration, where the VAT on 
those  goods  or  the  component  parts  thereof  was  wholly  or  partly  deductible.  This 
system allows for the recovery of initially deducted VAT in relation to the private use. 

By  letter  registered  with  the  Commission  on  13  July  2023,  the  United  Kingdom 
requested  an  authorisation  to  continue  to  apply,  in  respect  of  Northern  Ireland,  the 
special measure beyond 31 December 2023. 

Pursuant to Article 395(2), second subparagraph, of Directive 2006/112/EC, by letters 
dated 7 August 2023, the Commission transmitted the request submitted by the United 
Kingdom to the Member States except for Cyprus, which was informed by letter dated 
8  August  2023.  By  letter  dated  8  August  2023,  the  Commission  notified  the  United 
Kingdom that it had all the information necessary to consider the request. 

According  to  the  information  provided  by  the  United  Kingdom  in  its  request,  the 
factual  situation  justifying  the  application  of  the  special  measure  has  not  changed. 
Moreover,  an  explanation  on  the  functioning  of  the  special  measure  included  in  its 
request  indicates  that  the  special  measure  has  proved  to  be  effective  in  simplifying, 

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OJ L 347, 11.12.2006, p. 1. 
OJ L 103, 24.3.2021, p. 4. 

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(6) 

(7) 

(8) 

both for taxable persons and the tax administration, the procedure for collecting VAT 
in relation to expenditure on fuel for business cars partly used for private purposes. 

It is therefore appropriate to extend the authorisation set out in Implementing Decision 
(EU) 2021/512. The extension of the authorisation should be limited in time to allow 
for  a  proper  monitoring  by  the  United  Kingdom  of  whether  the  proportion  of  VAT, 
fixed on a flat-rate basis,  still correctly reflects  expenditure on fuel  for business  cars 
used  for  private  purposes.  The  authorisation  of  the  special  measure  should  therefore 
expire on 31 December 2026. 

In  the  event  that  the  United  Kingdom  requests  a  further  extension  of  the  special 
measure  beyond  31  December  2026,  it  should  accompany  such  request  to  the 
Commission with a report, by 31 March 2026. 

In  accordance  with  Article  8,  second  paragraph,  of  the  Protocol,  revenues  resulting 
from  transactions  that  are  taxable  in  Northern  Ireland  are  not  to  be  remitted  to  the 
Union. Therefore, the derogating measure will have no adverse impact on the Union's 
own resources accruing from VAT. 

(9) 

Implementing Decision (EU) 2021/512 should therefore be amended accordingly, 

HAS ADOPTED THIS DECISION:  

Article 1 

Article 1 of Implementing Decision (EU) 2021/512 is replaced by the following: 

‘Article 1 

By  way  of  derogation  from  Articles  16  and  168  of  Directive  2006/112/EC,  the  United 
Kingdom  is  authorised,  from  1  January  2021  until  31  December  2026,  to  fix,  in  respect  of 
Northern Ireland, on a flat-rate basis, the proportion of VAT relating to expenditure on fuel 
used for private purposes in business cars. 

Any request for extension of the measure provided for in this Decision shall be submitted to 
the Commission by 31 March 2026 and shall be accompanied by a report which verifies the 
effectiveness of the special measure, as well as the achievement of the objectives. The report 
shall  include  a  review  of  the  proportion  of  VAT  as  to    whether  it  still  correctly  reflects  the 
expenditure on fuel for business cars used for private purposes.  

Article 2 

This Decision is addressed to the United Kingdom of Great Britain and Northern Ireland, in 
respect of Northern Ireland. 

Done at Brussels, 

For the Council 
The President 

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