The Chancellor said his Spring statement would concentrate “People, Ideas and Capital” – what did that mean from the VAT perspective?
Not many announcements specific to VAT and Environmental Tax but hopefully those that were announced will bring benefits to households and the UK Economy in these turbulent times.
One change announced that certainly affect “people” in the widest context will be the Fuel Duty reduction.
Fuel Duty reduction
A not unexpected announcement given the pressures that rising fuel prices are creating across the UK for households and businesses where transportation costs are being passed on to consumers in rising prices and the average weekly cost of filling your car is around £90 now.
From 6pm on the 23rd March the Fuel duty will be cut by 5p a litre which the Chancellor was pleased to announce represented the biggest cut ever and would cost the Exchequer £5bn in lost revenue.
Energy Saving Material VAT – Two aspects of change
- VAT Relief Extended for Energy Saving Materials.
The Reduced VAT rate of 5% applies to specific Energy Saving Materials where they are supplied and installed by a provider in residential accommodation. The materials that qualify for this relief used to include water and wind turbines, but these were removed from October 2019. Today the Chancellor announced that these items would both be returned to the list.
The list of specific items does not apply to the installation of double glazing which was an area that many had hoped would fall into the approved list. In addition, there is comment as to the “complex eligibility conditions” being removed. The detail is yet to be seen on this but may relate to the 60% test that applies to the value of the material element in the supply and install contract. Other eligibility conditions relate to:
- the age of the person to whom the supply is made
- whether the supply is to an housing association or
- in respect of a building which is regarded as a “relevant residential use” building such as a residential care home or student accommodation block
Any reduction to complexity in the realm of VAT is to be welcomed.
- VAT Rate reduced to 0% on ESM Supply & Installation
Of wider impact in this regard was the announcement that the actual VAT relate to apply to the supply and installation of qualifying materials is to reduce from the 5% rate to 0% with effect from the 1 April 2022 for a period of 5 years. This should certainly encourage more homeowners to look at the installation of solar panels, ground source heat pumps and the like.
It will be welcomed by our clients across the Housing Association and University specifically as there is a lot of activity currently on such projects. It will be interesting to see the detail of the changes.
Delay in the Implementation of the VAT Penalty Regime
Not new news as the Chancellor had first announced the delay in the implementation of the VAT penalty regime in his Spring Budget of 2021. He re-announced this delay in today’s Spring Statement, confirming that the new regime will commence for periods starting on or after 1 January 2023. When introduced, the imposition of late penalties will be determined using a points system where points are awarded for each late submission. Penalties will be applied where points exceed certain thresholds.
Potentially all VAT registered taxpayers could be affected by this new regime and should consider reviewing its VAT reporting and payment systems before it is introduced.
This will be a substantial overhaul of the current penalty regime for VAT compliance and will bring with it the risk that businesses will fail to fully recognise the change and might fall foul of penalties for the first time. At least this postponement will provide businesses with a little more time to get some comfort about their processes and to make any changes they feel are necessary to make sure all VAT returns are submitted and paid in time
There remain hints in the Spring Statement document itself of more simplification for Tax management in the UK to come. In the area of VAT there have long been calls for changes to thresholds for Partial Exemption and Capital Goods Scheme regulations, to help simplify the impact of these regimes. Nothing to report on these aspects in this statement however so we’ll continue to wait.
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