VAT and indirect taxes

15 March 2023


Relief for energy saving materials - The government has published a call for evidence on options to reform VAT relief for the installation of energy saving materials. The call for evidence will consider making additional technologies eligible for relief, and providing relief for energy saving materials installed in buildings used solely for a relevant charitable purpose.

Drink container deposit return schemes - The VAT treatment of deposits charged under a deposit return scheme for drink containers will be simplified from 1 August 2023. Where a deposit is charged on a drink that is within the scope of a deposit return scheme, and the container is returned for recycling, VAT will not be applied to the deposit amount. Where the container is not returned for recycling, HMRC will collect the VAT on the unredeemed deposit.

DIY housebuilders’ scheme updates: digitisation project and increased time limits - The government has confirmed that it will legislate to digitise the DIY housebuilders’ scheme and extend the time limit for making claims from three to six months. This should improve the position for claimants and be beneficial for the HMRC team that administers the claims.

Fund management and financial services reform - The government is considering the responses to a recent consultation on proposed reforms to the VAT treatment of fund management and is continuing to discuss the proposals with interested stakeholders. It will publish its response to the consultation in the coming months. The government will also continue consider reforms to simplify the VAT treatment of financial services, to reduce inconsistencies and provide businesses with further clarity and certainty.

Services supervised by pharmacists and patient group directions - The VAT exemption on healthcare will be extended to include, from 1 May 2023, medical services carried out by staff who are directly supervised by registered pharmacists, and the zero rate of VAT on prescriptions to medicines supplied through patient group directions will also be extended. These changes are intended to ensure the tax system keeps pace with changes to healthcare delivery, and ease pressure on GP services.

Other indirect taxes

Plastic packaging tax - The plastic packaging tax rate will be increased in line with the consumer price index, from 1 April 2023.

Landfill tax - It was announced in the Autumn Budget 2021 that landfill tax rates in England and Northern Ireland would be uprated from 1 April 2023. The government has now confirmed that they will be further uprated from 1 April 2024. It has also published a response to the call for evidence on aspects of landfill tax which closed in February 2022, confirming that there will be further engagement with stakeholders before changes are announced. Scotland and Wales have their own independent landfill tax regimes.

Aggregates levy - The government will freeze the aggregates levy rate for 2023/24, but will return to index-linking the aggregates levy rate, so that it increases in line with the retail price index from 1 April 2024.

Air passenger duty - Air passenger duty (APD) rates will increase in line with the retail price index for 2024/25, meaning that short haul international rates remain frozen. Following a 50% cut in APD for domestic flights in 2023/24, the rate for domestic flights will increase by 50p to £7. The long haul and ultra-long haul economy rates will increase by £1.

Climate change agreement scheme - The government will extend the climate change agreement scheme, under which participants that meet agreed energy efficiency targets are entitled to reduced rates of climate change levy, by two years, to 2026/27. The extension will be open to new participants in currently eligible sectors. The Department for Energy Security and Net Zero will consult on the details of the extension and proposals for any potential future climate change agreement scheme.

Carbon capture, usage and storage - The government will provide up to £20bn funding for early deployment of carbon capture, usage and storage (CCUS), to help meet its climate commitments. A shortlist of projects for the first phase of CCUS deployment will be announced later this month. Further carbon capture projects will be able to enter a selection process for an expansion of this ‘track one’ cluster, to be launched this year, and two additional clusters of projects will be selected through a subsequent ‘track two’ process, with details announced shortly.

Vehicle excise duty uprating and heavy goods vehicles duty freeze - Vehicle excise duty (VED) rates for cars, vans and motorcycles will be increased in line with the retail price index from 1 April 2023. VED for heavy goods vehicles will remain frozen for 2023/24.

Reform of heavy goods vehicle levy - Following consultation in 2022, a new reformed heavy goods vehicle (HGV) levy will be introduced from August 2023, following the planned end of the current levy suspension period. The reforms are intended to ensure that the rate of HGV levy a vehicle attracts reflects its environmental performance.

Gaming duties - The gross gaming yield bandings for gaming duty will be frozen from 1 April 2023.

Customs & Excise

Alcohol duties and the draught relief - Duty rates on alcoholic products will increase in line with RPI, but the existing draught relief, which imposes lower excise rates on draught alcohol products, is to be increased from 1 August 2023, to further differentiate the duty costs of product sold in public houses against those sold via other outlets, such as supermarkets. The relief on draught beer and cider products will increase from 5% to 9.2%, and for wines, spirits based and fermented draught products from 20% to 23%. Furthermore, the government has reconfirmed its intention to fundamentally reform the structure of alcohol duty to establish standard rates based on alcohol by volume, rather than a disparate rate structure specifically based on product type. These changes are due to take effect from 1 August 2023.

Temporary approvals for certain excise regimes - Current excise duty legislation is quite draconian when it comes to the removal of licences and authorisations to store goods under duty suspension. Technical amendments to the temporary approvals regime will be made to enable HMRC to better use its discretion to allow business to avoid a duty liability and/or penalty where authorisations are withdrawn.

Changes to customs guarantees for special procedures, temporary storage, duty deferment - Until the European Union's (EU) Union Customs Code, which withdrew a specific derogation, the UK did not require guarantees to be provided for customs regimes except for duty deferment accounts. Since the UK’s withdrawal from the EU, HMRCs approach to this area has been somewhat inconsistent. The government will engage with stakeholders on potential changes that will allow more traders to use special procedures, temporary storage and duty deferment without a financial guarantee.

Voluntary standards for customs intermediaries - A long time coming, the government will consult on introducing a voluntary standard for customs intermediaries This measure should improve the consistency and quality of service provided by customs agents acting on behalf of importers and will be seen as a welcome development by most stakeholders in international supply chains.

Simplified customs declaration review - The digitisation of customs declarations has been a stated goal of the UK and many other jurisdictions for many years. The addition of over 250,000 new importers and exporters as a result of the UK’s withdrawal from the European Union has focused minds on the development of systems that allow better access to making customs declarations and greater latitude to making periodic declarations. Such simplification will be seen as a very welcome development.

Transit policy simplifications - Currently transit movements must be covered by a guarantee to secure payment of the duties suspended by the transit system. A waiver of a guarantee can be obtained currently but it is a complex system to navigate. The government intends to consult with the aim of making it easier for transport companies and individual businesses to access transit waivers that will free up cash and banking facilities that a guarantee would eat into. Expanding the ability of businesses to start and end transit movements at their own premises will also make accessing the transit system more efficient and would avoid trucks having to travel to specific locations to complete transit movements.