Indirect taxes newsletter – April 2023

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Jayne Harrold, Hugh Doherty, Damon Wright, Hakan Henningsson
Published: 28 Apr 2023 Updated: 28 Apr 2023
ESG Business tax Tax

Over the last month, we have had several key developments across indirect and environmental taxes.

Please send any suggestions for topics you would like to see in future editions to Hugh Doherty.

1. Headlines

1.1 Happy 50th birthday

This month we say happy 50th birthday to VAT as Saturday 1st April marked the anniversary of the introduction of VAT in the UK in 1973.

Over the years, VAT has undergone numerous changes and reforms, reflecting the evolving economic and social conditions of the UK, and continues to face new challenges and opportunities. The UK’s departure from the EU means that the UK has more autonomy than ever over its VAT policy and can set its own rates and rules.

In our view, VAT must adapt to the changing patterns of consumption and production in the digital age, such as online shopping, e-commerce platforms and digital services. As highlighted below, the EU is currently consulting on proposed changes to ensure it is ready for these changes. As such, the UK government may be monitoring these proposed amendments carefully before deciding whether to make its own proposals in this area.

So, while we raise a glass and toast to the start of VAT’s sixth decade in the UK, we have summarised below the key developments of interest across indirect and environmental taxes over April.

Reaching 50 is an impressive milestone. To celebrate the anniversary, we have considered some of the most high-profile tribunal cases from the last 50 years alongside recent developments which taxpayers may need to be aware of.

2. VAT

2.1 Business or non-business?

The phrase ‘Lord Fisher tests,’ about whether an activity is classed as business or non-business, stood the test of time until last year.

Lord Fisher organised shooting events for friends on his estate and charged a fee that was intended to cover costs, rather than make a profit. Customs and Excise (as it was at the time) decided that the income was subject to VAT because it related to sales made in the course of business. Lord Fisher argued that it was instead a private activity and was outside the scope of VAT.

The tribunal identified six tests to determine whether a business or non-business activity exists, and since then these have been especially useful for any organisation looking to define their supplies.

Recently, HMRC changed its policy on business tests to consider more recent case law, namely, Wakefield College, about whether the provision of further education courses to subsidise fee-paying students was an economic activity.

The simplified tests are now as follows: -

  1. Does the activity result in a supply of goods or services for consideration?
  2. Is the supply made for the purposes of obtaining income (i.e. remuneration)?

Where there is a direct and sufficient “link” between the supplies made and the payments given, then the activity is regarded “business” for VAT purposes. Simply because a payment is received, however, does not itself mean the activity is in the scope of VAT.

2.2 Mixed supplies?

The European Court of Justice case of (CCP) Card Protection Plan considered whether the company was supplying exempt insurance or a standard rated administration service for its card protection business, or a combination of both.

This was the first major judgement made by the European Court (ECJ) about mixed supplies and helped establish the tests for determining whether a supply is a single or multiple supply.

Key tests from this case include: -

  • Is there one principal supply with the others being incidental to the main supply? If so, the VAT charged should be based on the rate for the principal supply.
  • Is each supply an aim, or is one of them a way of enhancing the enjoyment of the main supply?
  • How do customers perceive the supply received?

More recently, HMRC published new guidance on its own view of how businesses should assign value to items that are sold as a package for a single price, where the individual items are supplied as multiple supplies with different VAT classifications. It also aims to help businesses understand how to lower “tax compliance risk.” The guidance suggests the documentation and evidence that businesses should maintain to support their apportionment.

These guidelines do not apply where there is a single supply that may be made up of various parts. As shown by CPP and later cases, defining whether a supply is either a single supply or multiple supplies provided together is a complex area.

Should you need assistance defining the supplies made by your business for VAT purposes, please do not hesitate to reach out.

GFC2 (2023): Help with VAT apportionment of consideration - GOV.UK (

2.3 EU VAT committee working paper on the treatment of NFTs

The European Commission published a working Paper on 21 March 2023 on the treatment on non-fungible tokens (NFTs).

The working paper notes that, while the current majority view is that NFTs are digital services, this is not certain and cannot be generalised to all NFT transactions. Rather, a case-by-case assessment is needed to determine whether the sale of NFTs is a transaction in goods or services from a VAT standpoint, and to ascertain their VAT treatment.

In summary, the working paper includes the following points:

  • The European Commission generally considers NFTs to be services, apart from NFTs that can be redeemed for specific goods. Where the NFTs are considered legal contracts, e.g., property title for a physical good, then the transfer of the NFT should qualify as a supply of that good.
  • An overview of the nature of NFTs, including the way NFTs are created, traded, and sold. The paper compares NFTs with vouchers, property titles, electronically supplied services and composite supplies. It also addresses whether or not certain payments (such as gas fees) could qualify as consideration for a supply from a VAT perspective and how to determine the taxable amount.
  • An overview of guidance on the VAT treatment of supplies linked to NFTs across the Member States and wider European Economic Area.

While the working paper can be considered a starting point, the VAT treatment of NFTs is far from decided. The conclusions in the working paper are not definitive, and the EU VAT Committee has referred various open questions to the delegations of each respective member state.

Please contact us for assistance if you have any questions regarding:

  • Whether or not you as a seller of an NFT should be considered a taxable person for VAT purposes;
  • The nature of NFTs and the corresponding VAT treatment;
  • The place of supply of a NFT transaction; or
  • The valuation of NFTs for VAT purposes.

3. Customs duty

The biggest news for customs duty (and excise) for us is welcoming our new Director Hakan Henningsson, a deep technical specialist with many years' experience assisting clients with complex issues and reducing duty tax burdens.

3.1 Draft border target operating model

HMRC have recently published the draft Border Target Operating Model, which will set out the new approach for importing goods into the UK from countries inside and outside the EU.

The Border Target Operating Model is a further development of the Border Operating Model announced by the Cabinet Office in July 2020. The Government states the new model will look to balance the need for effective border controls with the need for supporting businesses with import processes that are as simple as possible.

To ensure enough time for proper preparation, the new operating model will be implemented in stages:

- 31 October 2023 – the introduction of health certification on imports of medium risk animal products, plants, plant products and high-risk food and feed of non-animal origin from the EU.

- 31 January 2024 – the introduction of documentary and risk-based identity and physical checks on medium risk animal products, plants, plant products and high-risk food and feed of non-animal origin from the EU.

- 31 October 2024 – safety and Security declarations for EU imports will come into force.

For goods moving into Northern Ireland from Great Britain, arrangements are set out under the recently agreed Windsor Framework. None of the additional checks or controls set out in the new operating model will apply to imports into Northern Ireland from the EU, providing Northern Ireland traders with full access to the EU market. The position for moving goods, however, will be confirmed when the final document is published later this year.

The UK government welcome feedback on the new model and stakeholders’ ability to implement the timeline set out above. The engagement period will run until 15 May. A link to the specific points UK government wants feedback on can be found below.

The Border Target Operating Model: Draft for Feedback (HTML) - GOV.UK (

Should you wish to discuss the complexities of your own import/export procedures, or want support with providing feedback on the Model, please do not hesitate to reach out directly to Hakan.

4. Environmental Taxes

4.1 Carbon Border Adjustment Mechanism

UK consultation on Carbon Leakage launched on 30 March, with a closing date of 22 June.

The consultation seeks views on three options: Carbon Border Adjustment Mechanism (CBAM), which would introduce a carbon price on certain imported products that reflects both the carbon emitted during production and any difference between the country of origin and the carbon price if that product was produced in the UK; mandatory products and standards that would prohibit products above a upper limit for carbon emissions; and emissions reporting requirements.

For more details, please see this Insight Article (Link).

UK Government launches consultation on policies to address carbon leakage | Evelyn Partners

4.2 Plastic Packaging Tax changes and penalties

As announced at the Spring Budget, from 1 April 2023, the PPT rate has increased from £200 per tonne to £210.82 per tonne in line with the Consumer Price Index (CPI).  As such plastic packaging manufacturers or importers will need to ensure the packaging is aligned.

This month, HMRC has also published guidance on penalties applied to businesses that fail to comply with their PPT obligations. The penalties cover several failures including:

- failure to register;

- failure to submit a return or filing late;

- failure to pay a liability or overdue payment;

- inaccurate returns or other documents; and

- Failure to meet other requirements of the tax.

Returns and payments that are over 6 months late will be subject to a 5% penalty based on what is owed. Should the return be 12 months late, then an additional 5% charge will be levied. Similar rules apply for overdue payments.

For failing to register, the penalty is tax geared based on ‘potential lost revenue’. If there is evidence of serious non-compliance, the individuals concerned could face prison or a fine of up to £20,000 or 3 times the amount of potential tax lost.

4.3 Aggregates Levy changes deferred.

The introduction of proposed Aggregates Levy changes in the UK has been deferred to 1 October 2023. The changes had been expected to take effect on 1 April.

The two changes were:

  • The introduction of a general exemption for aggregate incidentally extracted as part of a construction product, which will replace existing exemptions; and
  • A new limit to the existing exemption for aggregate extracted from ‘borrow pits’, temporary sites used to extract aggregate for a specific purpose, before being returned, unmixed, to the same sites.

Should you have any questions on the implications of these deferred changes, please do not hesitate to contact Jayne Harrold or Dale Cambridge Sharpe.

Approval code: NTAJ14042332

By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication.

Tax legislation

Tax legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. You should always seek appropriate tax advice before making decisions. HMRC Tax Year 2023/24.