Enhancing the UK’s position in the international commodities markets

The Terminal Markets Order (‘TMO’) provides a valuable legislative simplification, which aids the smooth operation of the commodities markets and provides an important anti-VAT fraud measure.

Confirmation that the TMO is being retained is positive news, and the government’s consultation offers an important opportunity to explore the modernisation of the existing measures to accommodate the increasing globalisation and digitalisation of commodities trading.

UK Finance has been pleased to respond to the Consultation on Legislative Reform of the TMO.  We support the aims of modernising the legislation to improve clarity and certainty. We consider, however, that this must be done in a way that is sensitive to the broader regulatory and competitive environment and to ensure that unintended consequences do not arise. The best outcome will be achieved through HM Treasury (HMT), HMRC and representatives from industry working together to create a shared understanding prior to defining any proposed legislative principles.

The UK has traditionally been a strong base for international commodities markets and exchanges. Although an historic piece of legislation, the TMO has continuously provided a valuable simplification, which aids the smooth operation of the commodities markets and provides an important anti-VAT fraud measure. We are keen to see it retained and modernised.

Technical consultation

The existing legislation works through listing and defining the exchanges, market associations and transactions to which the TMO (and hence VAT zero rating) applies. The Consultation seeks views on modernising the TMO through creating a series of defining principles which can then be applied to the exchanges, market associations, members and transactions to establish if VAT zero rating under the TMO is available. The Consultation’s aim in this regard is to create a flexible piece of legislation that can accommodate developments without requiring regular legislative revision.    

We do not object to a ‘principles’-based approach.  However, many key points and definitions need to be clarified, for example the definition of a ‘market’; definitions of ‘relevant commodities and transactions’, to establish what the relevant principles could be and how they would apply. From a future-proofing perspective, the legislative principles and definitions developed should be broad enough to accommodate future changes, for example new qualifying markets and the trading of new commodity products. Those principles will still however need to be clear enough in their meaning and application to provide certainty.  

We consider that any new principles based legislative definitions should be accompanied by revised guidance to support both businesses and HMRC in applying any new legislation.

UK Finance’s full response to the Consultation is published on our website.