April 2023 VATwatch

VAT is 50!!

It might feel like it has been around forever, but our favourite(!) tax turns 50 today.

I am presenting a webinar with the CIOT on 4th April to celebrate and anyone is welcome to attend.

VAT is a bit older than I am and it has been fascinating researching what happened in the first few years. Can you believe it started as a “simple” tax with a flat rate of 10%?

Food for Assistance Dogs Now Zero-Rated

On 1 March 2023, HMRC updated its guidance in VAT Notice 701/15 – Animals and animal food.

Assistance dogs have been added to the list of dogs for which dog food may be zero-rated.

Changes to VAT Apportionment Guidance

HMRC has published new guidance on apportioning output tax following a consultation in 2021. HMRC concluded that practical guidance for businesses was preferable to changing VAT rules.

The new guidance gives examples of how to apportion output tax in certain situations.

There are two basic methods of apportioning output tax:

·       one based on selling prices

·       the other based on cost values

HMRC provide worked examples of both of these methods, including an example of apportionment where a business can only determine the cost of one of the supplies.

Both methods can be adapted to apply to either tax-inclusive or tax-exclusive amounts.

A business does not have to use one of these methods but if they pick a different method it must give a fair and reasonable result.

The Windsor Framework and VAT

In February, HMRC published details of the Windsor Framework. The Framework aims to address issues with the application of the Northern Ireland Protocol, including trade friction.

From a tax perspective, the Windsor Framework could have important ramifications for VAT, customs and excise.

VAT

The Framework provides for increased flexibility over VAT rates in Northern Ireland. In particular, the zero-rate would be permitted for goods supplied and installed in immovable property located in Northern Ireland.

This flexibility appears to pave the way for alignment of the rules on energy-saving materials between Great Britain and Northern Ireland (there is currently divergence).

Limits on the number of reduced and zero rates in Northern Ireland would also be removed.

Northern Ireland would be exempted from changes to the small business VAT regime across the EU that are due to come into force in 2025 and which could result in a requirement to lower the VAT registration threshold in Northern Ireland.

Open Consultation – Call for Evidence: VAT Energy Saving Materials Relief

HMRC has published full details of its ‘Call for Evidence: VAT Energy Saving Materials Relief – Improving Energy Efficiency and Reducing Carbon Emissions’.

The Call for Evidence intends to build on changes introduced in spring 2022, providing VAT incentives to improve the energy efficiency of homes over a five year period.

The intention is to introduce two further areas of reform; the inclusion of additional technologies, and installations of energy saving materials in buildings intended solely for a relevant charitable purpose. 

The consultation is open until 31 May 2023.

Simplified VAT Guidance from HMRC for Overseas Sellers

HM Revenue and Customs (HMRC) has published simplified VAT guidance for overseas sellers, with a new translation aimed at Chinese retailers that sell goods online into the United Kingdom.

The guidance, Selling goods using an online marketplace or direct to customers in the UK has been translated into simplified Mandarin to support sellers exporting goods from China to comply with UK import and VAT regulations.

In 2022, the UK imported £83.3 billion in goods and services from China and Hong Kong. Online shopping accounted for 26.5% of all UK retail sales in 2022, with a substantial number of goods being bought from international sellers via online marketplaces.

HMRC is encouraging UK agents and shipping companies to share the simplified guidance with their customers.