Deeks VAT News Issue 26
Keeping you up to date on VAT changes October 2022 Welcome to the latest edition of Deeks VAT News. In this edition, we cover the following: Our new Chancellor’s first “Fiscal Event” On 23 September, the Chancellor, Kwasi Kwarteng delivered a mini-Budget as part of a presentation of the Government’s Growth Plan 2022. The […]
Keeping you up to date on VAT changes
Welcome to the latest edition of Deeks VAT News.
In this edition, we cover the following:
- Our new Chancellor’s first “Fiscal Event”
- Proposed Repeal of off-payroll working rules (IR35)
- Changes to Late VAT Payments, coming in 2023
- HMRC late payment interest rates to be revised after Bank of England increases base rate
- Agent Update: Issue 100
- Case Law
- Summary of tax receipts – Update
Our new Chancellor’s first “Fiscal Event”
On 23 September, the Chancellor, Kwasi Kwarteng delivered a mini-Budget as part of a presentation of the Government’s Growth Plan 2022.
The news following has predominantly focussed on corporation and personal tax measures, the lack of OBR insight (expected later in the year), and also the subsequent “U-turn” on what was later blamed as the distraction of the proposed cut to the 45% rate of income tax for those earning in excess of £150k annually.
From an indirect tax perspective, The Government plans to introduce a modern, digital, VAT-free shopping scheme for non-UK visitors with the aim of providing a boost to the high street and creating jobs in the retail and tourism sectors. A consultation will be launched to gather views on the approach and design of the scheme, to be delivered as soon as possible.
In addition, alcohol duty rates for all categories will be frozen from 1 February 2023 to support businesses and help consumers with the cost of living.
Proposed Repeal of off-payroll working rules (IR35)
The 2017 and 2021 reforms to the off-payroll working rules (also known as IR35) will be repealed from 6 April 2023. From this date, the Government notes workers across the UK providing their services via an intermediary, such as a personal service company, will once again be responsible for determining their employment status and paying the appropriate amount of tax and NICs. For services provided before 6 April 2023, the current rules will still apply, even where the payment is made on or after 6 April 2023.
While this is a welcome step after years of contractual and commercial wrangling for business as to how to receive services, this will allow sub-contractors to regain some control of their preferred working structures. However, with the potential for workers to no longer be assumed onto payroll, the obligation to monitor values of supplies in line with VAT registration thresholds will become more pertinent.
The VAT registration threshold is currently £85,000.
Changes to Late VAT Payments, coming in 2023
A new penalty system will be introduced for VAT periods beginning on or after 1 January 2023. This is not being widely publicised by HMRC currently. More detailed guidance about the changes to VAT late submission penalties, late payment penalties and VAT interest charges is expected to be published in December 2022.
You can read HMRC’s current (brief) notes on this online.
- VAT registered business will be charged a 2% penalty for VAT not paid by the end of day 15 after the due payment date.
- There will be a further 2% penalty for tax still unpaid by the end of day 30.
- An annual penalty rate of 4% will apply thereafter until the tax is finally paid.
Late payment interest will also be charged on all tax paid late. It will be charged at annual rate of 2.5% above the Bank of England base rate.
The hope is that this regime provides a bigger incentive to pay all tax owed as quickly as possible, to avoid both penalty and interest charges.
It is worth noting that formal time-to-pay agreements reached with HMRC will prevent penalties being charged but not interest.
Broadly, we feel the new system should be welcomed, as it does away with the drawback that the current default surcharge system where a business gets the same penalty for being one day late with its VAT payment as one year. However, the new system no longer provides a free pass with your first late payment. The use of the surcharge liability notice will cease.
As a first-year concession until 31 December 2023, a penalty will not be issued by HMRC if all tax owed on a return is fully paid within 30 days of the due payment date.
HMRC late payment interest rates to be revised after Bank of England increases base rate
The Bank of England Monetary Policy Committee voted on 22 September 2022 to increase the Bank of England base rate to 2.25% from 1.75%. HMRC interest rates are linked to the Bank of England base rate.
As a consequence of the change in the base rate, HMRC interest rates for late payment and repayment will increase. These changes will come into effect on:
- 3 October 2022 for quarterly instalment payments
- 11 October 2022 for non-quarterly instalments payments
Late payment interest is set at base rate plus 2.5%. Repayment interest is set at base rate minus 1%, with a lower limit, or ‘minimum floor’, of 0.5%.
The HMRC News Story is available online.
Agent Update: Issue 100
HMRC has published its latest Update for agents which includes:
- Making Tax Digital (MTD) – Change in how customers tell HMRC about errors on their VAT returns via its new digital G-Form
- MTD – make sure your clients are signed up
- New powers for naming tax avoidance promoters
- Freeports update
- Plastic Packaging Tax – checks for those required to register and prepare to submit their return and payment from 1 October 2022
- Updates re Manuals and Publications
Case Law – SNM Pipelines Limited v HMRC  UKFTT 231 (TC)
In SNM Pipelines Limited v HMRC  UKFTT 231 (TC), the First-tier Tribunal (“FTT”) held that a taxpayer’s notice of appeal was valid, despite the fact that the amount of VAT in dispute had not been paid and that the business had not made a hardship application.
If a taxpayer disagrees with a decision made by HMRC (as in the case of this notice of assessment) there is a set procedure to be followed. Where the issue cannot be rectified by independent review, or alternative dispute resolution, it will eventually lead to an appeal to the FTT. There are strict time limits for lodging appeals (usually 30 days) and late appeals will only be accepted in limited circumstances.
VAT legislation ins this area states that an appeal will not be “entertained” unless either: (i) the amount of disputed tax has been paid; or (ii) the taxpayer successfully demonstrates on application to HMRC (or, failing that, the FTT) that paying the disputed amount would cause it to suffer hardship.
In this case, HMRC decided that the taxpayer was not entitled to certain repayments of input tax and issued assessments for £312,377. In August 2017, the taxpayer’s representatives submitted a notice of appeal within the prescribed 30-day time limit. However, the FTT returned the notice of appeal a few days later on the basis that the disputed tax had not been paid and no hardship application had been made. The same notice of appeal was re-submitted (it was now outside the 30-day time limit) but again returned for the same reason. Unfortunately, the FTT used an incorrect email address and the returned notice of appeal was never received by the taxpayer’s representatives.
This mistake was not discovered until around August 2020, when HMRC’s debt collection team tried to recover the disputed VAT. Having heard nothing further from HMRC or the FTT in relation to the dispute in the three years since re-submitting its notice of appeal, the taxpayer had apparently assumed that its appeal had been successful and was preparing to proceed.
As a result, in October 2020 the taxpayer’s new representatives submitted another notice of appeal (in addition to an application for permission to appeal out of time) but this was yet again returned on the basis that the disputed tax had still not been paid nor any hardship application made. In December 2020, a hardship application was finally made, and a subsequent notice of appeal was duly accepted by the FTT (this was now the fourth attempt). HMRC accepted the hardship application, but filed an objection to the late appeal.
The FTT considered previous decisions concerning the meaning of the word “entertained”, including one which suggested that a tribunal only begins to “entertain” an appeal when it is listed for hearing (rather than when the tribunal receives/acknowledges a notice of appeal). On that basis, the fact that an appeal cannot be “entertained” should not mean that it has not been validly made. However, such decisions were made in the context of the old procedural rules of the VAT Tribunal, a predecessor of the FTT. The question was therefore whether the current procedural rules of the FTT (the “FTT Rules”) produced a different answer.
Rule 22 of the FTT Rules applies in respect of hardship applications. Rule 22(1) refers to an “appeal proceeding”, which the FTT considered to be essentially one and the same with the term “entertained” used in VAT legislation. Although Rule 22(2) refers to certain steps being required when “starting proceedings”, the FTT held that this should be interpreted to be consistent with VAT legislation and Rule 22(1). On this basis, the FTT decided that the original notice of appeal was validly made in 2017 and, given HMRC had now accepted the hardship application, that the appeal should proceed towards a hearing.
This case highlights the importance of making appeals within the time allowed and following all necessary procedural steps. Given the strict time limits for commencing any form of tax litigation, it is critical to seek specialist advice as soon as any potential dispute arises.
Summary of tax receipts Update
HMRC has published its latest monthly summary of tax receipts, National Insurance contributions (NICs), and expenditure for the UK. It now includes the latest provisional receipts data for August 2022.
Total HMRC receipts for April 2022 to August 2022 are £310.9 billion, which is £31 billion higher than in the same period a year earlier.
VAT receipts for April 2022 to August 2022 are £67.4 billion, which is £0.4 billion higher than in the same period a year earlier. HMRC state that payments through the VAT payment deferment policy have now largely ceased, however comparisons to last year remain unrepresentative, alongside wider economic impacts relating to Coronavirus.
Thankyou for reading Deeks VAT October 2022 Newsletter.
We look forward to seeing you next time.