Today’s announcement was short on VAT measures, when it might have been expected that the standard rate of VAT would be increased and the rate of VAT on energy and fuel would be reduced.
While nothing VAT-related was announced in the speech itself, there were a number of measures reported in the documents released by the Treasury afterwards. There is a new VAT penalty regime in 2022, a review of the overly-complex VAT rules for fund management in the financial services sector, and indications that a new Online Sales Tax might be introduced.
Although not a VAT measure, it is also worth noting that hotels and the hospitality sector will be beneficiaries of a 50% discount on business rates. A Residential Property Developers Tax of 4% on profits above £25m will also come into force.
Below is a brief roundup of the VAT news.
Update on UK funds regime review
Currently, the supply of many financial services is exempt. This includes the management of certain funds, but excludes other funds. The legislation has become increasingly opaque, culminating in discretionary find managers thinking they were not exempt but many realising that they were and making large claims to HMRC.
The government says: it remains committed to its ongoing review of the UK’s funds regime. In addition to the AHCs and REITs reforms, the FCA has now published its rules for the new Long-Term Asset fund, a structure which will be supported by the recommendations of the Productive Finance Working Group, published last month. The government will also publish its response to the call for input on the broader elements of the UK funds regime review, as well as a consultation on options to simplify the VAT treatment of fund management fees, in the coming months.
Reform of penalties for late submission and late payment of tax
Currently, if a VAT return is late or payment is late, a surcharge is applied. The amount is the same whether it is one day late or a year late. Some judges have found that this is unfair, but only in certain circumstances leading to many claims against these surcharges.
The government says: a new regime of penalties for VAT will come into effect for VAT taxpayers from periods starting on or after 1 April 2022 which aims to reduce the unfairness in the current surcharge regime.
Online Sales Tax (OST)
Supplies to UK customers by “bricks and mortar” retailers are subject to VAT and policed by HMRC. Supplies online to UK customers by non-UK suppliers frequently evade detection and give non-UK online suppliers an unfair competitive edge solely down to the lack of effective VAT taxation.
The government says: it will explore the arguments for and against a UK-wide Online Sales Tax, the revenue from which would be used to reduce business rates for retailers with properties in England and with the block grants of the Devolved Administrations increased in the usual way. The government will publish a consultation shortly.
Second-hand Motor Vehicle Export Refund Scheme
Currently, the margin scheme cannot be used for sales of margin scheme goods to an EU customer, including from Great Britain to Northern Ireland. This exclusion of the margin scheme has been temporarily relieved so far, although only for the sale of second-hand motor vehicles and only where transported from Great Britain to Northern Ireland.
The government says: it will legislate to be able to introduce a Second-Hand Motor Vehicle Export Refund Scheme. Under such a scheme, businesses that remove used motor vehicles from Great Britain for resale in Northern Ireland or the EU may be able to claim a refund of VAT following export. This will ensure that Northern Ireland motor vehicle dealers will remain in a comparable position as those applying the VAT margin scheme elsewhere in the UK.
Exemption for dental prostheses imports
The government says: it will extend the current VAT exemption for dental prostheses supplied by registered dentists and other dental care professionals or dental technicians to imports of dental prostheses by these persons. This will ensure the VAT treatment for such prostheses supplied into and within the United Kingdom, including between Great Britain and Northern Ireland, is consistent.
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