Welsh Tax Acts etc. (Power to Modify) Act 2022: explanatory memorandum - Explanatory notes

1. These Explanatory Notes are for the Welsh Tax Acts etc. (Power to Modify) Act 2022 (“the Act”) which was passed by Senedd Cymru on 12 July 2022 and received Royal Assent on 8 September 2022. They have been prepared by the Economy, Treasury and Constitution Group of the Welsh Government in order to assist the reader of the Act. The Explanatory Notes should be read in conjunction with the Act but are not part of it.

2. Senedd Cymru (“the Senedd”) has passed three Acts that relate to taxation; the Tax Collection and Management (Wales) Act 2016 (‘TCMA’), the Land Transaction Tax and Anti-avoidance of Devolved Taxes (Wales) Act 2017 (‘LTTA’) and the Landfill Disposals Tax (Wales) Act 2017 (‘LDTA’).  These 3 Acts are collectively referred to as the ‘Welsh Tax Acts’ in the Act.

3. The Act provides the Welsh Ministers with a power to make changes, by means of regulations, to the Welsh Tax Acts and regulations made under those Acts, if the Welsh Ministers consider that it is necessary or appropriate to make those changes for or in connection with any of the 4 purposes specified in the Act.

4. The regulations can be made either under the draft affirmative procedure, or in urgent cases only, under the made affirmative procedure (discussed further below).

Section 1: Power to amend the Welsh Tax Acts etc.

5. Section 1(1) provides that the Welsh Ministers may make regulations which modify the Welsh Tax Acts and regulations made under them if the Welsh Ministers consider that the modifications are necessary or appropriate for or in connection with any of the following purposes—

6. Subsection 1(1)(a) – to ensure that land transaction tax and landfill disposals tax are not imposed where to do so would be incompatible with any international obligations. The power in section 1 might be used for this purpose, for example, where a trade deal or double taxation agreement is concluded with another country and the imposition of landfill disposals tax or land transaction tax in a particular case is contrary to that deal or agreement.

7. Subsection 1(1)(b) – to protect against tax avoidance in relation to landfill disposals tax and land transaction tax. The Welsh Ministers may wish to take such action where they consider that amendment of the legislation will put its intended application beyond any doubt, as well as in cases where a perceived loophole is being exploited. Tax avoidance is not defined in the Act and so takes its natural meaning.

8. Subsection 1(1)(c) – to respond to changes made to the predecessor taxes which affect, or may affect, the amounts paid by the Secretary of State into the Welsh Consolidated Fund. The predecessor taxes are defined in section 1(4) as being stamp duty land tax and landfill tax.

9. Subsection 1(1)(d) – to respond to a court or tribunal decision which affects, or may affect, the operation of the Welsh Tax Acts or regulations made under those Acts. These decisions need not necessarily be decisions on the provisions of the Welsh Tax Acts themselves, or their associated regulations. Decisions affecting the predecessor taxes or on general points of law may also be capable of affecting the operation of the Welsh Tax Acts and their associated regulations.

10. Section 1(2) notes that there are certain restrictions on the general power provided to the Welsh Ministers by section 1. Those restrictions are set out in sections 2(4), (5) and (6) and are discussed further below.

11. Sections 1(3) and 1(4) provide a series of definitions.

Section 2: Regulations under section 1 - supplementary

12. Section 2(1) permits regulations made using the power in section 1 to impose landfill disposals tax and land transaction tax and to impose or extend a penalty.

13. Section 2(2) allows regulations made using the power in section 1 to have retrospective effect, as long as:

• the regulations do not retrospectively impose any new penalty or extend any existing penalty (section 2(2)(a))
• regulations that retrospectively create or increase a liability to land transaction tax or landfill disposals tax do not have effect from a date earlier than the date that the Welsh Ministers make an oral or written statement to the Senedd indicating their intention to make such regulations (section 2(2)(b))
• regulations that retrospectively reduce or withdraw an entitlement to a landfill disposals tax credit do not have effect from a date earlier than the date that the Welsh Ministers make an oral or written statement to the Senedd indicating their intention to make such regulations (section 2(2)(c)).

14. Section 2(3)(a) allows the regulations made using the power in section 1 to make different provision for different purposes.

15. Section 2(3)(b) allows the regulations made using the power in section 1 to make incidental, consequential, supplementary etc. provision.

16. Sections 2(1) to 2(3) are not an exhaustive list of what regulations made using the power in section 1 may do.

17. Section 2(4)(a) prevents the power in section 1 from being used to modify Part 2 of the Tax Collection and Management (Wales) Act 2016 and any regulations made under that Part. Those provisions relate primarily to the creation of the Welsh Revenue Authority and its governance.

18. Section 2(4)(b) and (c) prevent the regulation-making power in section 1 from being used to modify regulations setting rates and bands for land transaction tax or tax rates for landfill disposals. The Welsh Ministers already have the power to modify those tax rates and bands by means of further regulations, which are subject to the made affirmative procedure.

19. Section 2(5) prohibits regulations made under section 1 from making provision that relates to the investigation of criminal offences.

20. Section 2(6) prohibits regulations made under section 1 from altering any Senedd procedure for making statutory instruments under the Welsh Tax Acts. For example, if a provision in the Welsh Tax Acts provides that an instrument must be made under the draft affirmative procedure, regulations under section 1 cannot modify that provision so that the instrument must be made under the made affirmative procedure.

21. Section 2(7) provides that the regulation-making power in section 1 does not affect any other power the Welsh Ministers already have to make regulations in the Welsh Tax Acts. Equally, the power in section 1 is not affected by the ability of the Welsh Ministers to make regulations using other powers in the Welsh Tax Acts.

Section 3: Policy statement- regulations under Section 1 which have retrospective effect

22. Section 3(1) places a duty on the Welsh Ministers to publish a statement on their policy with respect to the exercise of the power to make regulations that have retrospective effect.

23. Section 3(2) provides that the statement must be published before the end of the period of 3 months beginning with the date the Act receives Royal Assent.

24. Section 3(3) allows the Welsh Ministers to revise their statement of policy. If they do so, this revised statement must be published.

Section 4: Procedure for regulations under section 1

25. Section 4(1) provides that the power to make regulations under section 1 is exercisable by statutory instrument.

26. Section 4(2) provides that a statutory instrument containing regulations under section 1 may be made either under the draft affirmative procedure or, where the Welsh Ministers consider there is a need to make them urgently, under the made affirmative procedure.

27. Under the draft affirmative procedure, a statutory instrument cannot be made unless a draft of the instrument has been laid before Senedd Cymru and approved by it.

28. Under the made affirmative procedure, a statutory instrument can be made and can come into force before it has been approved by the Senedd. Where the made affirmative procedure is used, section 4(4) provides that the instrument must be laid before Senedd Cymru, and section 4(5) provides that the Senedd must approve the regulations within a maximum period of 60 days (the 60-day period does not include any period during which Senedd Cymru is dissolved or is in recess for more than 4 days) in order for the regulations contained in the instrument to remain in effect after that period ends. Section 4(6) provides that where the Senedd votes on a motion to approve the instrument before the end of the 60-day period and the instrument is not approved, the regulations contained in the instrument will cease to have effect at the end of the day on which the vote takes place. Section 4(7) provides that any motion to approve the instrument made under the made affirmative procedure cannot be moved in the Senedd (and so the instrument cannot be considered and voted upon by the Senedd) until 28 days have elapsed from (and including) the date the instrument is made (the 28-day period does not include any period during which Senedd Cymru is dissolved or is in recess for more than 4 days).

Section 5: Regulations ceasing to have effect - supplementary

29. Section 5 sets out what happens if a statutory instrument containing regulations under section 1 is made under the made affirmative procedure but fails to achieve Senedd approval (and so the regulations contained in that instrument cease to have effect).

30. Section 5(2) provides that any liability, or increased liability, to land transaction tax or landfill disposals tax that would not have arisen but for the regulations is to be treated as never having arisen.

31. Section 5(3) provides that any withdrawal of an entitlement to a tax credit, or reduction in such an entitlement (in relation to landfill disposals tax) that would not have occurred but for the regulations is to be treated as never having occurred.

32. Section 5(4) provides that any liability to a penalty, or an increase to the amount of a penalty, that would not have occurred but for the regulations is to be treated as never having arisen.

33. Section 5(5) provides that the validity of anything done under or in reliance on the regulations is not affected by the fact that the regulations have ceased to have effect. This will ensure that actions taken by the taxpayer in accordance with the regulations during the period they had effect will remain valid, and also will similarly protect actions taken by the Welsh Revenue Authority.

Section 6: Review of operation and effect of this Act

34. Section 6 imposes a duty on the Welsh Ministers to review the operation and effect of the Act and publish the conclusions of that review within 4 years of the date that the Act came into force. That review must include an assessment of any alternative legislative mechanisms for making changes to the Welsh Tax Acts and regulations made under those Acts. Furthermore, the Welsh Ministers must consult the Senedd and such other persons they consider appropriate in undertaking the review.

Section 7: Expiry of the power under section 1

35. Section 7(1) provides that the power to make regulations in section 1 expires five years after the date that the Act comes into force, unless regulations under section 7(2) provide that the power is to continue in force for a further period. That period must, however, end on or before 30 April 2031.

36. The power in section 7(2) may be exercised only once (section 7(3)).

37. A statutory instrument containing regulations under the power in section 7(2) must be made under the draft affirmative procedure.

38. Section 7(5) provides that regulations under section 7(2) cannot be laid before the Senedd before the conclusions of the review required by section 6 have been published. It also provides that the Senedd cannot approve the regulations after the initial five-year period has ended.

39. Section 7(6) provides that regulations made under section 1, before the expiry of that power, continue in force following its expiry.

Section 10: Short title

40. The short title of this Act is the Welsh Tax Acts etc. (Power to Modify) Act 2022.

41. The following table sets out the dates for each stage of the Act’s passage through the Senedd. The Record of Proceedings and further information on the passage of this Act can be found on the Senedd website at:

Welsh Tax Acts etc. (Power to Modify) Bill (senedd.wales)

The following table is required when the Explanatory Memorandum is published alongside the Bill on introduction to show how the Standing Order requirements on the Bill have been fulfilled. Whilst these Standing Orders no longer apply to this final version that accompanies the Act, this section has been included for reference and to show the rationale for the main sections of the Explanatory Memorandum.