Autumn Budget 2021 - Indirect Taxes

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In what seemed to become a major focus of this Budget, the Chancellor announced a reform and simplification of the alcohol duty regime with the overhaul focussed on healthy drinking. There were a number of small but important indirect tax changes announced and these are highlighted below.

Tom Kivlehan - Partner and Head of Indirect Taxes

Tom focuses on pragmatic strategies for mitigating undue VAT and Duty costs and has particular experience of global supply chain issues having worked on global projects for several high profile organisations. Tom leads our Indirect Tax practice in the UK and sits on the BDO International Indirect Tax Steering Committee focusing on the service levels and requirements of global businesses.

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​VAT rules in Freeports

Alongside announcing the location of the first three Freeport sites to commence operating in November 2021 (Humber, Teesside and Thames), the government has announced that it will legislate to introduce a free zone exit charge, a change to the previously announced VAT rules for Freeports. 

The existing proposals include a new zero rate for sales of goods within a free zone regime, which differs from the VAT treatment in, for example, tax warehouses. The legislation announced at the Autumn Budget will Implement a free zone exit charge to ensure businesses do not gain an unintended tax advantage. The government changes will take effect from 3 November 2021.

Please visit our BDO Freeports Hub for more information on Freeports.

Alcohol duty reform and simplification

The government has proposed substantial changes to alcohol duties to better align them with public health protection.

The main proposals are that:

  • Beverages would be taxed in direct proportion to their alcohol content. This would increase duties on some drinks such as high strength cider while reducing duties on other drinks such as sparkling wine and fruit ciders.
  • The number of duty rates would reduce from 15 to 6, with rates harmonised for drinks at 8.5% ABV or above. There would be reduced rates for products below 3.5% ABV.
  • There would be a small producer relief to reduce the tax burden on smaller producers of wine, cider, spirits and made-wine below 8.5% ABV.
  • To support the pub sector, the rates for draft beer and cider would be cut by 5%.

A consultation on the proposals has been announced which ends in January 2022.  The government will respond to the consultation before setting out its final plans, consulting on the required legislation and technical details in Summer 2022.

There is an opportunity for any business that is impacted by alcohol duties to respond to the consultation.

There are no immediate changes and any changes relating to Northern Ireland are subject to agreement with the EU.

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VAT measures

The VAT-related proposals listed below are contained in documents published by HM Treasury and HMRC.

Northern Ireland second-hand car sales

The NI Protocol can impact the VAT margin scheme for sales in NI of cars brought from Great Britain. An interim solution for cars registered before 1 January 2021 has been proposed, alongside a planned export VAT credit scheme for cars registered after 1 January 2021 which are exported to NI or the EU.

Imports of dental prosthesis

An exemption from import VAT will be introduced and made retrospective to 1 January 2021 to correct an unintended anomaly. Some taxpayers will be able to obtain import VAT refunds as a result.

Fund management reform

Along with wider tax changes, the government will consult on options to simplify the VAT treatment of fund management fees.

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Air Passenger Duty (APD)

There will be a new lower rate of APD for domestic flights, excluding private jets, as well as a new ultra-long-haul band covering destinations with capitals located more than 5,500 miles from London. These measures are designed to align APD more closely with the government’s environmental objectives. 

Changes to the APD rules will be made in 2023.

Tobacco, alcohol and gambling

Duty rates on all tobacco products will increase by RPI + 2%. However, the rate on hand-rolling tobacco will rise by an additional 4%, to 6% above RPI inflation. Finally, the Minimum Excise Tax (MET) will increase by an additional 1%, to 3% above RPI inflation this year.

The duty rates on beer, cider, wine and spirits will be frozen for another year.

The government will legislate in the Finance Bill to raise the Gross Gaming Yield bandings for gaming duty in line with the RPI.

Online sales tax

The government will has announced that it will consult shortly on an Online Sales Tax. 

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On-demand webinar: Autumn Budget 2021

Our tax experts Vanessa Lee, Caroline Harwood, Liam O'Doherty and Glyn Woodhouse, analyse the Chancellor’s announcement, and what this could mean for you or your business.


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