Deeks VAT News Issue 24

Keeping you up to date on VAT changes 

April 2022 

Issue 24 

Welcome to the latest edition of Deeks VAT News. 

In this edition, we cover the following:

• Spring Statement 2022 – Highlights 
• VAT on Energy Saving Materials 
• HMRC late payment interest rates to increase after Bank of England increases base rate 
• VAT grouping disputes: the implications of HSBC 
• Customs Warehousing 
• Office of Tax Simplification – Review of property income 
• Revenue and Customs Brief 6 (2022): Lennartz mechanism and VAT accounting 
• HMRC Webinars – “Making Tax Digital for VAT” and “How to apply the VAT reverse charge for construction services” 
• HMRC Issues Scam Warning 

Spring Statement 2022 – Highlights 

The Chancellor of the Exchequer presented his Spring Statement 2022 to Parliament on Wednesday 23 March 2022. Some were expecting that this statement had the potential to reach further and become a Spring Budget in its own right. Measures were understandably focussed on household support mechanisms in light of the current cost of living crisis. 

There was one noteworthy announcement specifically concerning VAT, but key announcements included:  

• Fuel duty – reduced by 5p per litre from 6pm on 23 March 2022 
• Class 1 employees NIC – the Primary Threshold of employees NIC will rise from July 2022 
• Employers NIC – the Employment Allowance (for smaller employers) increases to £5,000 for 2022/23 
• The basic rate of income tax is to be cut by 1% to 19% from April 2024 
• R&D relief – alongside the reforms being implemented from April 2023, companies will be able to claim R&D relief on projects supported by pure maths 
• Capital Allowances – The government will consider alternative options so that they are able to replace the super-deduction before when it expires in April 2023 
• VAT on energy saving materials will be reduced from 5% to 0% from April 2022 (more information on this is below) 

VAT on Energy Saving Materials 

HMRC have published details of measures introducing a time-limited zero-rate of VAT for the installation of certain types of energy saving materials (ESMs). This reverses previous CJEU-derived legislative changes introduced in 2019, which narrowed the scope of the previous relief, for installations in residential accommodation in Great Britain.  

The zero-rate will be available for a period of 5 years and will then revert to the 5% reduced rate of VAT. The measure permanently removes the social policy conditions and the 60% test which businesses were required to consider determining the VAT liability of ESM installations prior to these changes, and brings wind and water turbines back into scope of the relief. 

The policy paper is available to read in full online.  

HMRC late payment interest rates to increase after Bank of England increases base rate 

HMRC has confirmed via its website that following the vote by the Bank of England Monetary Policy Committee to increase the Bank of England base rate to 0.75%, HMRC interest rates for late payments will also increase by 0.25%.  

The late payment interest rate will be set at 3.25% from 5 April 2022. (The repayment interest rate will remain at 0.5%.) 

These changes will come into effect on 28 March 2022 for quarterly instalment payments; and 5 April 2022 for non-quarterly instalments payments. 

VAT grouping disputes: the implications of HSBC 

As reported in last month’s newsletter, the Upper Tribunal in HSBC Electronic Data Processing (Guangdong) Ltd concluded a number of points relating to the interpretation of the UK’s VAT grouping rules.  

In particular, the UT held that each body corporate eligible for VAT group membership must itself be ‘established’ in the UK, and that the test of ‘establishment’ should use the same principles as those used in the place of supply rules.  

The UT has also ruled that HMRC’s power to terminate VAT group memberships where ‘necessary for the protection of the revenue’ is not limited to abusive scenarios, which may further limit circumstances where VAT grouping may be achieved. 

Our view is that this is likely to make it harder to establish VAT grouping of UK branches with limited resources in the UK to provide group services.  

The case will now return to the FTT for a full hearing following the UT’s determination of the preliminary issues. The full UT judgement can be read online.  

Customs Warehousing 

One of the many post-Brexit implications we are seeing starting to bite is the removal of consignment stock provisions, a customs duty easement which has historically been beneficial to many UK businesses. 

This is leaving many having to take on more formal processes in order to deal with the movement of goods for onward sale in the UK. In the main, this appears to be resulting in businesses setting up their own customs warehouses. You can use custom warehousing to delay duty and VAT and will only pay when your goods leave the warehouse and go into free circulation. 
 
You must be authorised to run a warehouse as a warehousekeeper. We have been delighted to recently assist clients in navigating the application process for registering new customs warehouses.  
 
If this is something that would be worth considering for your business, we would be happy to have an introductory call to explore this option with you. 

Office of Tax Simplification – Review of property income 

Further to a scoping document published on 1 March 2022, on 17 March, the Office of Tax Simplification (OTS) published an online survey and call for evidence to seek views about how the taxation of property income could be simplified.  

The review is intended to identify opportunities for simplification of the tax and administrative treatment of individuals, partnerships and micro-companies deriving income from residential property. It will consider letting of property by micro-companies but will not examine property development or letting by larger companies or REITS. The primary focus of the review will be on income received from property, but it will also address other taxes such as capital gains tax. 
 
Revenue and Customs Brief 6 (2022): Lennartz mechanism and VAT accounting 

Published on 10 March 2022, this Brief explains what you must do if you’ve chosen to continue using the Lennartz mechanism and you entered the arrangement before 22 January 2010. 

This brief clarifies HMRC’s understanding of Finance (No 3) Act 2010, Schedule 8, paragraph 4. In some circumstances, businesses who chose to keep the VAT recovered under the rules of the Lennartz mechanism before 22 January 2010, must continue to account for output tax on the non-business use of the asset. 

Revenue and Customs Brief 7 (2022): claiming a repayment of overpaid import VAT on the importation of dental prostheses into the UK 

This Brief explains how to claim a repayment of any overpaid import VAT on imports of dental prostheses made between 1 January 2021 and 27 October 2021. 

HMRC Webinars – “Making Tax Digital for VAT” and “How to apply the VAT reverse charge for construction services” 

HMRC have issued additional sessions for those wishing to learn more about the above topics.  

The “Making Tax Digital for VAT” webinar will be held on: 

• 6 April 2022 at 09:45–10:45; and 
• 21 April 2022 at 11:45–12:45. 

Register to attend the webinar online.  

Dates for “How to apply the VAT reverse charge for construction services” are: 

• 22 April 2022 at 09:45–10:45; and 
• 26 April 2022 at 13:45–14:45. 

Register to attend the webinar online.  

HMRC issues scam warning 

Self-assessment taxpayers are being warned to watch out for scam emails, texts and calls which may offer a “refund” or demand unpaid tax. 

HM Revenue and Customs (HMRC) said that customers were at increased risk of falling victim at this time of year, with the self-assessment filing deadline having recently passed. 

At the beginning of this year HMRC gave customers an extra month to submit completed tax returns, allowing filings through to 28 February 2022. Taxpayers now have until April 1 to pay their outstanding tax bill or set up a time to pay arrangement to avoid receiving a late payment penalty. 

It is possible to corroborate any HMRC contact through a number of sources, listed on HMRC’s Check a List of Genuine HMRC Contacts page.  

People can report suspect calls using a form on gov.uk. They can forward suspect emails claiming to be from HMRC to phishing@hmrc.gov.uk and texts to 60599.