The Spring Budget and VAT

Property

DIY house builder VAT refund scheme

If you are a DIY house builder, or someone converting a non-residential building into a home, you can claim back VAT on certain costs. One of the issues with the VAT refund scheme has been the short time limit for submitting claims. However, the government has announced that the time limit for making claims is to be increased from three months to six months. A date for this change hasn’t been announced yet but it is welcome news, albeit a more generous time limit of 12 months would have provided DIY house builders with even more opportunity to ensure their claims are correct and complete before being submitted.

In addition, plans have also been announced to digitise the refund scheme application process, which will provide much welcomed efficiencies to the application process. Although this has not yet been confirmed, we hope that this digitisation will also allow for supporting documents to be submitted, meaning that the days of posting all the invoices, plans etc to HMRC, in hard copy in support of the claim, would also come to an end. Overall, this package of measures should be good news for DIY housebuilders, making claims easier to submit and giving them more time to do so.

ESM consultation extension

Improving the energy efficiency of the UK’s housing stock and increasing the proportion of energy provided from low-carbon, renewable energy sources is a key part of meeting the government’s commitment to reach net zero. The 2022 Budget announced a temporary zero rate for installation of energy saving materials (ESMs) in homes in England, Wales and Scotland. Once ratified, the Windsor Framework will extend this to Northern Ireland. The government is now calling for evidence on options to reform the VAT relief for the installation of energy saving materials in the UK. The three key objectives are:

1. Improving energy efficiency and reducing carbon emissions
2. Cost effectiveness
3. Alignment with broader VAT principles, which unhelpfully appears to mean that where an ESM is installed as part of a wider single supply of refurbishing homes, it would not be appropriate for the zero-rated ESMs element to be carved out.

There will also be a welcome review to consider extending the list of qualifying ESMs to include items such as battery storage.

Also, following the UK’s departure from the EU, the government is considering reinstating the VAT relief for buildings which are used for a relevant charitable purpose, which was withdrawn in 2013.

Health sector

As part of reacting to how the healthcare sector operates and with the aim of easing the burden on general practitioners, the VAT exemption for health services is to be extended to include medical services undertaken by individuals directly supervised by registered UK pharmacists. This change will take effect from 1 May 2023.

For similar reasons, the government is to extend the zero rate of VAT for prescription medicines to cover prescriptions for medicines supplied through Patient Group Directions, with effect from a date to be set in the autumn of 2023.

Drinks Deposit Returns Schemes

Measures are to be introduced which outline the VAT accounting process for supplies made under the Drink Deposit Returns Schemes (DRS). Whilst the DRS in England, Wales and Northern Ireland will not be implemented until 2025, the DRS will apply in Scotland from August 2023, and the new measures will be in place in time for the Scottish implementation. The DRS will cover bottled and canned drinks.

Under the scheme, a deposit is first charged by the manufacturer or importer of the drinks products, and is passed on through the supply chain. The deposit amount is refunded to the end consumer if the container in which the drink was supplied is returned.

VAT will not be due on the deposit amount charged at the time of the supply by the manufacturer or importer, and provided the container is returned and the deposit refunded, VAT will not become accountable. VAT will become due if the container is not returned and the deposit not refunded, through a VAT accounting adjustment. This adjustment will fall to the manufacturer or importer who first charged and collected the deposit in the supply chain.

Full details of the VAT accounting process which would need to be adopted by the first supplier in the supply chain, will be included in the Spring Finance Bill 2023 together with regulations in the form of a Statutory Instrument.

General announcements

Late payment interest

HMRC introduced new rules for penalties and interest for VAT and VAT returns from 1 January 2023. The government has now announced a further clarification with respect to interest payable on overdue amounts.
The measure will mean that when HMRC issues an assessment for VAT due, if this isn’t paid within 30 days the late payment interest due will be charged from the date of HMRC’s original assessment. Currently, late interest is only calculated from the due date, ie 30 days after the date of the assessment. So, if you now fail to pay a VAT assessment within 30 days of the assessment you can expect a higher late payment interest charge. Interest is calculated at the Bank of England base rate plus 2.5%.

The new measure takes effect from 15 March 2023. Interest becoming payable on the overdue payment of a VAT penalty, from the date the penalty notice was issued by HMRC, has already been implemented from 1 January 2023.

Customs

The government is to introduce a mechanism by which HMRC can grant Advance Valuation Rulings (AVRs) for customs purposes, with respect to goods being imported into the UK. Previously customs rulings have only been granted with respect to tariff classifications and matters relating to the origin of goods. AVRs granted will be binding on the party obtaining the ruling and HMRC for three years. The valuation of goods being imported into the UK determines the amount of customs duty and import VAT which will be payable.

The legislation required to bring this measure into law will be introduced in the Spring Finance Bill 2023 and a Notice with the force of law will complete the legal framework. The Notice is expected to outline the process of applying for an advanced ruling and the information required to be included in the application, as well as describing instances where a valuation ruling need not be given.

The introduction of AVRs for customs valuations is a welcome move. Obtaining a ruling will provide importers with certainty that the declared values are correct and the right amount of customs duty is being paid. It will also make the customer declaration process more efficient if a valuation ruling has been obtained in advance.

Whilst the UK was a member of the European Union, AVRs were not permitted and this measure is the latest to be introduced as part of the modernisation and digitisation of the UK’s customs system.