The Spring Budget contained a number of VAT and duty related measures in specific areas which we cover in detail below.
VAT interest and late payment rules
Legislation is included in the Spring Finance Bill 2023 to make what is referred to as minor technical changes to the new interest and late payment rules for VAT which took effect for VAT return periods beginning on or after 1 January 2023. These measures have effect:-
from 15 March 2023 for late payment interest;
from 1 January 2023 for late payment penalties; and
from the date of Royal Assent of the Spring Finance Bill 2023, for repayment interest.
VAT relief for energy saving materials
A call for evidence has been published on options to reform VAT relief for the installation of energy saving materials in the UK. This considers the inclusion of additional technologies and the possible extension of the relief to include buildings used solely for a relevant charitable purpose. Any changes to be made in this area will also apply in Northern Ireland due to the Windsor Framework which has now been ratified by both the UK and the EU.
Deposit return schemes
Legislation will be introduced to simplify the VAT treatment of deposits charged under a deposit return scheme for drinks containers. 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 digitisation project
The DIY housebuilders’ scheme will be digitised and the time limit for making claims will be increased from three to six months. No timeframe has been announced as yet for when these particular changes will be introduced.
Services supervised by pharmacists
From 1 May 2023, the VAT exemption on healthcare is being extended to include medical services carried out by staff directly supervised by registered pharmacists.
Treatment of patient group directions
From autumn 2023, the zero rate on prescriptions will be extended to medicines supplied through patient group directions, which effectively enables some health professionals to administer specified medicines to a pre-defined group of patients, without them having to see a prescriber.
Fund management reform
Following the consultation on proposed reform of the VAT rules on fund management which closed in February, the government is considering the responses and is continuing to discuss the proposals with stakeholders. The government will publish its response to the consultation in the coming months.
Review of the VAT treatment of financial services
Building on the recommendations of the Industry Working Group established to consider the future of VAT and financial services, the government will continue to consider possible reforms to simplify the VAT treatment of financial services.
Fuel duty
For an additional 12 months until 31 March 2024, fuel duty will not increase as planned, hence the temporary 5 pence fuel duty cut will remain in place and the planned increase in line with inflation for 2023/24 will not proceed. According to the Budget publications, the government will continue to keep fuel duty rates in the long term under review.
Alcohol duty and alcohol duty reform
Alcohol duty will remain frozen until 1 August 2023 when duty rates of all alcoholic products produced in or imported into the UK will increase in line with RPI. From the same date, draught relief (the duty paid on drinks served from pumps) will increase from 5 percent to 9.2 percent for beer and cider draught products and from 20 percent to 23 percent for wine, spirits based and other fermented draught products.
The government also intends to legislate, as planned, to reform the duty structure for alcoholic products by creating standardised tax bands based on alcohol by volume. Two new reliefs and transitional arrangements for certain wine products will feature in these changes which will also take effect from 1 August 2023. A policy paper sets out the rates of duty for all categories of alcoholic products in Schedule 6. Stakeholders including producers, importers and resellers of alcoholic products have until 9 April 2023 to submit their views on the draft secondary legislation.
HMRC also intends to harmonise the approval, return and payment processes for domestic producers of alcoholic products. These changes are scheduled to take effect from late 2024 when it is intended that a new digital system will be introduced.
Temporary approvals for certain excise regimes
The government is legislating for minor technical amendment to temporary approvals which are given to a business seeking a review or appealing against HMRC’s decision to revoke certain excise approvals.
HMRC will also be provided with a discretionary power to extend a temporary approval when a business is unsuccessful in overturning HMRC’s decision, which would otherwise end automatically. This will give HMRC the ability to agree a short period for the business to legally dispose of stocks without incurring a penalty. The change will take effect from Royal Assent of the Spring Finance Bill 2023.
Gaming duties
The gross gaming yield bandings for gaming duty will be frozen from 1 April 2023.
Tobacco duties
Duty rates on all tobacco products increased by RPI plus 2 percent. The rate on hand-rolling tobacco increased by RPI plus 6 percent and the minimum excise tax increased by RPI plus 3 percent with all these changes taking effect from 6pm on 15 March 2023.
Air Passenger Duty (“APD”)
APD rates will increase in line with RPI for 2024/25. Short haul international rates remain frozen. Following a 50 percent cut in APD for domestic flights in 2023/24, the rate for domestic flights will increase by 50p to £7. Long haul and ultra-long haul economy rates will increase by £1.
Vehicle Excise Duty (“VED”)
VED rates for cars, vans and motorcycles will increase in line with RPI from 1 April 2023. To support the haulage sector, VED for heavy goods vehicles will remain frozen in 2023/24.