The past few years have been very eventful in Indirect Tax and, although 2023 looks set to bring fewer changes than we have become accustomed to, we recommend that organisations continue to closely monitor their forthcoming obligations as this pattern could quickly change.
The 2023 changes continue to be driven by the UK adapting its systems, processes and tax regimes to the new environment created by the UK’s exit from the EU.
While some of these changes will impact organisations across the board, others are limited to importers of goods and specific sectors.
Throughout 2023
EU’s VAT in the Digital Age (ViDA) package
The European Commission has launched its long-awaited proposals to modernise the VAT rules within the EU collectively known as ViDA. These could have a significant impact on UK organisations trading across the EU from 2025 onwards.
The ViDA proposals consist of three key parts, commonly referred to as:
- The Platform economy
- The Single VAT registration
- Digital reporting and E-invoicing.
The ViDA proposals will ultimately require unanimous approval by all Member States to come into law. It is, therefore, expected that there will be a number of developments regarding ViDA during 2023.
1 January 2023
Default surcharge changes
For VAT periods beginning after 1 January 2023, the long-standing default surcharge regime applicable to the late submission of returns and/or the late payment of associated VAT will be replaced by a new penalty regime. This will operate a points-based system where points are issued for late filing and upon reaching a threshold a fixed penalty of £200 will be levied. Penalties in respect of late payments will be calculated when payments are outstanding over 15 days and then a daily rate will be applied to any balances outstanding beyond 30 days. HMRC has indicated it will not charge the 15 – 30-day penalty for late payments throughout 2023 (unless any payment is more than 30 days late), to enable taxpayers to get used to the changes.
Read more here
1 February 2023
Changes to option to tax processes
HMRC have implemented the following changes to the VAT option to tax process with effect from 1 February 2023:
- HMRC have stopped issuing option to tax notification letters in response to taxpayer submissions
- HMRC have stopped processing requests to confirm the existence of an option to tax apart from in limited circumstances (e.g. the effective date of the option is likely to be more than 6 years ago).
Such changes increase the onus on taxpayers to ensure they maintain accurate information regarding their option to tax position.
13 February 2023
EU Excise Duty changes
A significant change in the process for moving excise duty paid goods between EU Member States took effect from 13 February 2023. EU Member States (and Northern Ireland) are changing from a paper-based system to using the ‘Excise Movement and Control System’ “EMCS” to track the movement of duty paid goods. Previously, this system was only used for tracking movements of duty suspended goods.
15 March 2023
Spring Budget changes announced
The Chancellor of the Exchequer provided an update on Government finances and proposals for changes to taxation on the 15 March 2023. They key changes affecting VAT and other indirect taxes announced were:
- Immediate changes (with effect from 15 March) for rebated fuel (red diesel) to ease some of the strict rules around the availability and use of such fuels.
- Extension of VAT relief for services carried out by staff “directly supervised” by registered pharmacists (VAT exemption) and for prescriptions to medicines supplied through Patient Group Directions (zero-rating).
- Measures to make the VAT DIY Housebuilders Scheme more attractive (digitisation of offering and extension of filing time limits).
- New legislation enabling HMRC to grant Advance Valuation Rulings on customs duty to organisations importing goods into the UK.
- Various consultations and calls for evidence covering areas such as VAT relief on energy saving materials, VAT fund management and financial services reviews, and a consultation on wider customs reliefs.
BDO’s full Budget coverage can be found at here including further detail on the indirect tax changes introduced.
1 April 2023
VAT turned 50
On 1 April 2023 VAT celebrated a significant milestone being 50 years from the introduction of the tax in the UK. VAT was heralded as a ‘simple tax’ when introduced in 1973 but has proved anything but in the intervening years. There have been many memorable changes and caselaw decisions over the years which have hit the headlines.
VAT remains a key source of government tax revenue and the 50th anniversary provides the perfect opportunity to reflect on how to make sure that it remains fit for purpose for the future.
1 May 2023
Introduction of VAT-related payment scheme for the sale used cars to Northern Ireland and the EU
From 1 May 2023, HMRC has introduced the new second-hand motor vehicle payment scheme which is available where a UK VAT registered business moves a second-hand vehicle purchased in GB to NI for resale in NI or to the EU. The new scheme should put businesses in a similar financial position as if they were able to access the second-hand margin scheme.
VAT on energy saving materials in Northern Ireland
From 1 May 2023, legislation was introduced under the Windsor Framework to enable the zero-rate for energy saving materials (which applies in Great Britain) to be extended to supplies in Northern Ireland also.
VAT relief for medical services carried out under the supervision of pharmacists
Also from 1 May 2023, and in accordance with the Spring Budget announcement, HMRC has its policy in relation to the VAT exemption for medical services. It is now possible for medical services carried out by staff directly supervised by pharmacists to qualify for VAT exemption. This brings the VAT treatment into line with services supervised by other registered health professionals.
1 August 2023
Alcohol duty reforms
The duty structure for alcoholic products is to be amended to a standardised series of tax bands based on alcohol by volume. Any business involved in manufacturing, distributing, holding or sale of alcoholic products is likely to be affected and should take steps to ensure the impact of changes is understood and any necessary changes are made.
There will also be two new reliefs and a temporary easement as follows:
- Small Producer Relief replaces and extends the current relief for small brewers to all producers of all alcoholic products.
- Draught Relief will reduce the tax rate on draught containers holding at least 20 litres of qualifying alcoholic products.
- The temporary easement will be to assist wine producers and importers in managing the transition to the new method of calculating duty. It is intended to be in place for 18 months.
30 November 2023
End of Customs Handling of Import and Export Freight (“CHIEF”) - Customs Declaration Service (“CDS”) to become sole customs platform
The use of HMRC’s long-standing customs platform, CHIEF, came to an end for import declarations on 30 September 2022 and was replaced by CDS. The use of CHIEF for export declarations will end on 30 November 2023 (having been pushed back from 31 March 2023) and exporters still using CHIEF should take steps ahead of this date to ensure that they are ready and able to make declarations via CDS instead, given the potential disruption to their supply chains.
31 December 2023
Safety and Security Declarations
Having left the EU, the UK has delayed the requirement to complete Safety and Security Declarations ("SSD") in respect of goods imported from the EU. However, this is expected to end on 31 December 2023 and, whilst submitting the SSD is normally the responsibility of the carrier, businesses will need to be preparing in advance of this to ensure that they have the capacity, resources, and knowledge to provide the information required to the carrier.
Trader Support Scheme ("TSS") potentially ends
The TSS was set up to assist taxpayers with understanding the rules applicable to the movement of goods between Great Britain (GB) and Northern Ireland (NI) and to provide a portal for customs declarations to be made for the movement of goods between GB and NI. It provides support, guidance and training, including assistance with the completion of import and safety and security declarations. The TSS has been extended to the end of 2023; however, businesses should make plans for the system to end on this date.
End of some retained EU law
The Government’s original intention was that most remaining EU derived law in the UK (a major example of which would be the VAT legislation) was to be repealed at 31 December 2023 unless a specific decision is taken by ministers to retain an individual piece of legislation going forward. In May 2023 the Government changed its approach and announced that 600 specific retained EU laws would be revoked. This appears to have limited impact on indirect taxes but it will be important to keep abreast of Government policies in this area given the significance of retained EU legislation for indirect taxes.