An Autumn Statement much of which had already made its way into the media before the Chancellor stood up. It’s always important for us to consider the detail from the VAT and Environmental Tax perspective but in this instance, it proved remarkably short on content.
From the Environmental side, we did feel that there were things that could have been done to ease VAT and Environmental Tax burdens and encourage changes in behaviour. From the VAT revenue raising angle, there are no direct rate rises so the “triple lock” promise remains in place.
So, what did the Statement contain from the Indirect Tax perspective?
In short, very little changed on the VAT front – the VAT registration and de registration threshold has been frozen for another two years from April 2024 although the VAT registration threshold is still high in comparison with EU and OECD averages remaining at £85,000.
The level of the VAT threshold has been much debated in the Tax Simplification Review but there is still no decision as to whether to lower it and bring more businesses into the VAT “family” or to raise it as a method to reduce the administrative burden on businesses from complying with the VAT regulations. That debate continues to rumble on.
A key missed opportunity was to address the complexity of the VAT rules around the fitting of energy saving materials into residential properties. Such supplies were reduced to the Zero VAT rate from April 2022 which was an encouraging step, however, the legislation does not allow contractors to apply the Zero rate on works contracts where new insulation work or fitting of green energy solutions form only a part of the scope of the works. This is proving a real cost to the UK social housing sector who are unable to recover the 20% VAT they are charged and this could easily have been remedied in this Statement.
Slightly more to reflect on from the Environmental Tax side although again, we thought more could have been achieved here as well.
Climate Change Levy rates rebalanced
Previous examination of the equitability of CCL rates applying to different fossil fuels established that supplies of gas incurred a lower effective rate of this carbon tax than other fossil fuels. As promised previously, the government has announced that it will legislate to increase the CCL rate for gas (and for solid fuels) by 2025 to ensure equitable treatment in future.
Who will be affected?
Retail suppliers of gas will need to update their systems to recognise this change in the CCL rate, but this should not present an issue for major suppliers with sophisticated systems. The rate increase better recognises the carbon content of gas and will increase the retail cost of gas supplied by utilities, but in light of the increasing energy prices generally, it seems unlikely that this measure will have much effect on the purchasing habits of gas consumers.
CCL is designed to have a cooling effect on the purchase and consumption of fossil fuels including gas. So, while this rebalancing is welcomed, we wonder if more could have been done with the CCL regime in general, given the increasing concern over climate change.
Electricity Generator Levy
This new levy will be introduced temporarily from 1 January 2023 to 31 March 2028 at a rate of 45% of ‘extraordinary returns’ (aggregate revenue that generators make at an average output price above £75/MWh) by low-carbon electricity generation. Essentially, this is to claw back the additional revenue that large scale renewable generators are perceived to have gained when their government contracted price for the renewable energy, they generate was linked to the market price for gas. Since then, the market price for gas has soared, but the costs of generating renewable electricity has fallen.
Who will be affected?
The levy is directed at large scale generators only, so it is unlikely to impact the many small generators of renewable electricity – fortunately.
This suggests strongly that the government’s initial linking of renewable electricity prices with gas prices was flawed. The measure will claw back revenue for the government, but it is not clear that it will lead to any further reduction in the price of renewable electricity for consumers, and we hope that it doesn’t have the effect of increasing retail prices.
Vehicle Excise Duty on electric vehicles from April 2025
From this date, electric cars, vans and motorcycles will begin to pay VED in the same way as petrol and diesel vehicles, on the basis that they should make a ‘fair tax contribution’. It may also go some way to start addressing the predicted shortfall in duty revenue that the rapid increase in electric vehicles will create. The government will legislate for this measure in Autumn Finance Bill 2022.
Who will be affected?
Nearly all electric vehicles will eventually be affected, including vehicles first registered between 1 April 2017 and 31 March 2025. The rate will vary according to the level of CO2 emissions the car produces, so given that manufacturers must cease production of internal combustion cars by 2030, all cars will be impacted at some point.
The low tax rates and duty have been one of the main attractions for people buying or driving EVs so it will be interesting to see if the inevitable increase in the taxation of these vehicles will change driver’s attitudes. Also, will the market effect of increasing the tax costs of EV’s motivate manufacturers to reduce the price of such vehicles?
Tariff suspensions – an opportunity for some?
Following industry consultation, tariffs on over 100 goods will be removed for two years to help reduce costs for certain UK producers. Some tariffs as high as 18% will be removed, including items such as aluminum frames used by UK bicycle manufacturers and some ingredients used in food manufacture.
Who will be affected?
We have yet to see the full extent of this measure or the goods that will benefit from the tariff reduction, but, given the very temporary nature of it, the sectors involved will need to be prompt to recognise this and take any steps necessary to secure the relief.
The cost-of-living crisis is driven in part by inflation and the increasing costs of raw materials. Will a fairly short list of goods (only 100) have any meaningful impact on that? Other importers may feel the need to lobby for similar treatment themselves.
A quiet day on the Indirect Tax front therefore and challenging economic times remain ahead it is clear. We’ll continue to alert you to opportunities for savings or risks that need managing.