The pace of change in Indirect Tax in recent years has been relentless and 2022 should be no exception.
We are expecting developments to continue to flow from the emergency pandemic measures and the UK’s exit from EU as well as the implementation of further policy reform by the Government and HMRC. Many of these changes will impact business across the board so it is imperative that your organisation is ready for them.
We have outlined below a summary of the key recent and expected changes:
HMRC Land & Property Guidance
HMRC has been undertaking an ongoing review of the VAT treatment of supplies relating to land and property. It has recently indicated that it will publish further guidance in early in 2022 including a clarification of its view in relation to call options. Although it states that its current guidance has not changed, HMRC accepts that its position in recent litigation may have caused uncertainty and doubt.
End of the New Payments Scheme for COVID VAT deferral
The New Payments Scheme for Covid VAT deferral allowed taxpayers to pay deferred VAT payments from 2020 in interest free instalments. This scheme has now closed for all businesses so any unpaid amounts potentially subject to interest and/or penalties.
Read more about on this here.
1 January 2022
Full Customs declaration Controls introduced
Full customs declarations and controls have been introduced for to imports from the EU apart from goods imported from the island of Ireland (this concession applies while EU/UK negotiations on the Northern Ireland protocol continue). However, Safety and Security Declarations will now not be required until 1 July 2022. Businesses no longer have the option to delay customs declarations (unless they are importing from Ireland) and should ensure they are ready for these changes and either have the in-house capability or the services of an agent to assist with this.
The BDO Customs Declaration Assessment Tool can be used to ensure the correct information is being submitted in your customs declarations by freight forwarders. BDO also now offers a customs brokerage service to complete customs declarations for our clients.
In addition, pre-notification requirements for Sanitary and Phytosanitary goods were introduced from 1 January although again, relevant imports from Ireland will be exempt. Read more here.
Removal of Intrastat for most UK businesses
Since 1 January 2022, Intrastat declarations only apply to movements of goods between Northern Ireland the EU (and vice versa). Therefore, the 2021 requirement for businesses in Great Britain to continue to submit Intrastat reports for Arrivals has ceased.
2 March 2022
VAT Grouping arrangements
In response to the well-publicised delays in processing VAT group applications, HMRC issued Revenue and Customs Brief 5 (2022) which outlines what actions businesses and organisations need to take whilst awaiting a response from HMRC. The actions required will depend on whether the VAT group applicants are already registered for VAT or not. This is a complex matter particularly in respect of corporate transactions and re-organisations and may result in cash flow issues where VAT refunds are due on start-up costs or capital expenditure.
Businesses should ensure that they understand the application of the guidance particularly in respect of the way in which it should charge and account for VAT, and subsequently report via VAT returns.
1 April 2022
Compensation and termination payments
HMRC has published new guidance on its approach to the VAT treatment of compensation and termination payments and the new rules apply from 1 April 2022 onwards. While this does not constitute a change in the underlying VAT law, you can expect a challenge from HMRC if you do not comply with the new guidance. It also means that if you have had previous written advice or a clearance, you will need to review it to see if it is compatible with the new guidance and take action if there is uncertainty.
It is fair to say that HMRC’s stance on such payments has been ‘evolving’ over the past few years. Therefore, as well as updating your business’ systems to ensure they comply with the new guidance from 1 April, you should consider whether any adjustments for past VAT returns are now appropriate. Read our analysis here.
End of temporary reduced rate for leisure and hospitality.
In its Summer Economic Statement in July 2020, the government announced a number of VAT measures including a temporary reduction of the VAT rate for the hospitality, hotel and holiday accommodation sectors as well as admission to certain attractions from 20% to 5%. This VAT cut was designed to boost customer demand in response to the economic crisis caused by the Covid-19 pandemic. In the spring 2021 Budget, the Chancellor announced a second extension to the relief: the 5% rate of VAT was extended until 30 September 2021. From 1 October 2021 the hospitality sector VAT rate increased to 12.5% until 31 March 2022, after which time it is due to return to the standard rate, currently at 20%. Further information on the scope of the reduced rate is available here.
Introduction of Plastic Packaging Tax.
From April 2022, all businesses trading in the UK that use more than 10 tonnes of plastic packaging a year may need to register for and pay the Plastic Packaging Tax at £200 per ton. Although the new tax will be levied on producers and importers of plastic packaging which does not contain sufficient recycled content, the additional costs are expected to be borne across the supply chain and so users of plastic packaging should also understand the implications of PPT for them. Click here to read about the five key steps you should consider to get your business ready.
VAT on installation of energy saving materials
VAT on energy saving materials installed in residential properties was reduced from 5% to 0% from April 2022 to April 2027 (this includes insulation, solar panels, water and wind turbines). The rules to qualify for this rate have also been relaxed and the relief is no longer be restricted by the 'social policy conditions' or the '60% test'.
Use of rebated red diesel is much more restricted
From 1 April 2022 onwards, the use of 'rebated' red diesel (5% VAT) is restricted to a very small number of industry sectors (including agriculture, horticulture, fish farming, forestry and rail transport). HMRC says that businesses within sectors including construction, mining and quarrying, ports, manufacturing haulage (for transport refrigeration units on lorries), road maintenance, airport operations, oil and gas extraction, plant hire, logistics and waste management will no-longer be able to use red diesel. If your business uses red diesel, you will need to consider the impact of switching to higher cost fuel and whether existing contracts with customers/your supply chain will need to be adapted to reflect the change.
Making Tax Digital for VAT mandatory
Making Tax Digital for VAT will apply to business trading below the £85k VAT registration threshold (ie all remaining VAT registered businesses) for VAT return periods starting on or after 1 April 2022. As a result, such businesses will be required to maintain digital records of their VAT data, submit VAT returns to HMRC via appropriate software and ensure that all data is “digitally linked” throughout their VAT return process.
Notification of uncertain tax treatments
Following consultation with advisors and industry, HMRC have introduced a new requirement requiring large businesses to notify HMRC of uncertain tax treatments. The new rules apply to returns, including VAT returns, due to be filed from 1 April 2022 with the aim of improving HMRC’s ability to identify issues where businesses have adopted a different ‘legal interpretation’ to HMRC.
The requirement will only apply to ‘large businesses’ – this is broadly aligned to the current threshold tests for the Senior Accounting Officer (SAO) provisions under Finance Act 2009. Essentially, the test will be based on the £200m UK turnover and £2bn UK balance sheet test. Note that this applies to partnerships and LLPs as well as corporates, wherever incorporated. Further information is available here.
1 June 2022
Updated HMRC policy on business activities for VAT
HMRC issued Revenue and Customs Brief 10 (2022) which confirms a change in policy with effect from 1 June 2022 and outlines the new tests that HMRC will apply to determine if an activity is a business activity for VAT purposes.
The updated policy confirms that HMRC will no longer apply the business tests based on earlier case law in determining whether an activity is business and that recent case law (Longridge on the Thames  BVC33 and Wakefield College  BVC 22) will take precedent.
Going forward, there is a new two stage test which is the approach that HMRC will take when considering whether an activity constitutes a business activity for VAT purposes.
Businesses should ensure that they understand the application of the guidance particularly in respect of the VAT liability of activities and the right to input tax recovery.
30 June 2022
Submission of delayed declarations from 2021
Certain importers up to 31 December 2021 were able to make imports from the EU using the delayed declaration processes (by concession this continues for goods imported from the island of Ireland while negotiations on the Norther Ireland protocol are ongoing). Following the import, importers have to then submit a full declaration for customs no later than 175 days later. Therefore, if a business used this facilitation on 31 December 2021, the full entry will be required no later than 30 June 2022.
Importers should ensure they are ready for these changes and either have the in-house capability or the services of an agent to assist with this. The BDO Customs Declaration Assessment Tool can be used to ensure the correct information is being submitted.
1 July 2022
Customs Duty – Safety and Security Declarations delayed again
Changes planned to customs certification and physical checks will NOT now go ahead from 1 July 2022 and will instead be delayed until 31 December 2023. This means that there will be no changes to customs procedures for:
- All remaining regulated animal by-products
- All regulated plants and plant products
- All meat and meat products
- All remaining high-risk food not of animal origin.
Further stages of physical checks for dairy products and other animal and fish products planned from later in 2022 have also been delayed until 31 December 2023.
1 October 2022
New system for import declarations
HMRC is phasing out its Customs Handling of Import & Export Freight (CHIEF) system and from 1 October 2022 all declarations for import movements will have to be made through the new Customs Declaration Service (CDS). Importers will have to register for CDS in advance so that they can authorise agents/freight forwarders to make import declarations on their behalf through the system. This is not something to leave until the last minute as it will take time to set your business up in the system and prepare for extra information that must be input to use it. Read more here.
Moving second hand cars to Northern Ireland for sale
The government intends to introduce a new second-hand motor vehicle export refund scheme on 1 October 2022. It will allow businesses to claim a refund of VAT if and when they move a second-hand motor vehicle from England, Scotland and Wales to Northern Ireland for resale.
Dealers will no longer be able to use the VAT margin scheme to account for VAT on such second-hand vehicles moved to Northern Ireland and then resold – they will need to account for VAT on the full value of the supply.
31 December 2022
VAT default surcharge regime replaced by new regime for late payment of VAT and late filing of VAT returns
The current default surcharge regime for penalising taxpayers who file their VAT returns late or who make late payments of VAT due to HMRC has long been recognised as being unfair and ineffective with many disputes around surcharges levied ending up in Tribunal. From 1 January 2023 a new regime is being introduced to make the penalty regime for late filing and payments fairer and consistent with other taxes. Additionally, there are changes relating to the interest payable and receivable by taxpayers in respect of VAT. Read more on the new rules here.
For further advice – please contact the local member of our VAT and Customs team:
Visit BDO's dedicated VAT and Customs pages here.
Visit our Rethinking the region hub and read more guidance from BDO specialists in your area.