We have created an easily accessible one-stop-shop (excuse the pun) covering important developments across VAT and environmental taxes, duties and levies. Importantly, we review the news holistically, and consider wider consequences of these developments.
Please send any suggestions for topics you would like to see in future editions to Hugh Doherty.
1.1 Significant changes to the electricity generator levy
The recently introduced electricity generator levy imposes a temporary 45% charge on exceptional electricity generation receipts from the production of wholesale electricity from nuclear, renewable (including biomass) sources and waste.
The tax does not just apply to pure renewable electricity generation companies; many corporate groups have embedded renewable electricity generation within their asset portfolio and may find themselves within the scope of the tax.
The new tax applied from on 1 January 2023 and comes to an end on 31 March 2028. Generators within scope are corporate groups or standalone companies that operate low carbon electricity generation assets in the UK and which are connected to the national transmission network or local distribution networks.
There is a threshold of 50GWh per annum of electricity generation from in scope assets. The threshold has been reduced from 100GWh to remove disincentives to generation. Importantly, only electricity exported to the grid or local distribution networks is subject to the electricity generator levy, self-supplies and supplies by private wire are not.
1.2 Important changes to the VAT options to tax procedures
Businesses involved in property transactions should be aware of the latest changes to the option to tax procedures, which apply from 1 February 2023.
The changes have been introduced following recent efficiency reviews undertaken by HMRC with the aim of reducing the delays experienced by businesses when awaiting confirmation of their option to tax or requesting confirmation that a record of their option is held.
HMRC has now simplified the procedures, which were previously subject to detailed review.
- From 1 February 2023, HMRC will no longer issue a receipt letter confirming notification of an option to tax has been received by HMRC. An automated email response will be sent by HMRC instead, a copy of which should be retained by the business. Options should therefore be sent to HMRC by email with the subject line including details of the property address, including postcode, and effective date of the option to tax.
- HMRC will only respond to requests to check if it holds a record of an option to tax if the effective date is likely to be over 6 years ago, or if requested by a person appointed as a Land and Property Act receiver or an insolvency practitioner.
While this should result in a much quicker responses from HMRC, the changes mean that HMRC will now respond to enquiries only in very limited circumstances and businesses will need to ensure that they retain adequate records of their options to tax. Given that options are normally effective for least 20 years, businesses may need to maintain records of options for 20 years or longer.
HMRC’s receipts of notification were helpful when businesses needed to provide evidence of an option to other parties. If your business is party to a sale and purchase agreement, you may need to consider the evidence required to support options notified to HMRC from 1 February 2023.
These changes also make it even more important that complete and accurate details are provided when options are notified to HMRC. With an automated response, and limited checking by HMRC, HMRC may be more likely to question the validity of an option subsequently.
Any option to tax should be carefully considered and we would be pleased to review and assist with this.
2.1 New compliance penalty regime for VAT
From 1 January 2023 the penalty regime for late filing and late payment of VAT has changed.
Two types of late payment penalty will apply:
- Interest, chargeable at base rate plus 2.5%, will be applied daily from the first day any payment is overdue.
- Additional late payment surcharges, equalling 2% or 4% of the unpaid tax overdue, will be chargeable. The 4% surcharge is applied where previously sanctioned taxpayers remain overdue for 30 days.
A 30 day “grace period” will apply for 2023. From 1 January 2024, this grace period will be reduced to 15 days for a first late payment.
For late filing, a penalty point is applied for each individual return submitted late, with a flat £200 penalty levied by HMRC when specific points totals are reached. Where VAT registered businesses submit quarterly returns, this means four late returns would be required in a two-year period to trigger the first £200 penalty.
The new late submission penalty regime should be preferred by the majority of taxpayers, with lower penalties overall for late filing for all but the smallest businesses. Traders who regularly reclaim VAT from HMRC, however, have been brought into the penalty net - previously no fine could be applied to late repayment returns.
2.2 Error corrections can now be submitted online
Previously, where taxpayers wanted to correct submitted VAT returns, this required a paper form to be posted to HMRC. Taxpayers can now submit error corrections online.
The threshold for reportable errors on returns that are either ‘careless’ or occurred ‘despite reasonable care’ remains the same:
- Errors under £10,000 can be corrected on the next return;
- Errors between £10,000 and £50,000 may be reportable, depending on the total (net) value of sales reportable in the next return period;
- Errors over £50,000 are always separately reportable.
The online submission allows for explanatory letters and calculations to be provided, giving taxpayers an opportunity to explain how ‘reasonable care’ was taken in preparing the original return, and potentially reducing the penalties applied.
2.3 Revised HMRC policy on gas and electricity supplies to developers
HMRC has had a change of heart in respect of supplies of gas and electricity to housing developments, and now accepts that where the house is ‘sufficiently developed’ and individually connected to the mains supplies it is considered a separate premises. This means that supplies of fuel and power to the developments are more likely to fall under the ‘domestic’ threshold and qualify for the reduced rate (5%) VAT and no climate change levy (CCL).
Utility companies may have an over declaration of CCL historically, where the development was treated as a single site. Any housing developers who paid CCL on energy that was billed separately to individuals’ plots may wish to consider asking their supplier to amend bills received in the last 4 years to recover any overcharged CCL.
2.4 Other developments
- A recent European Court decision may have opened the door for businesses operating employee incentive schemes to realise VAT savings. Please click here for our guidance.
- Significant changes announced in EU VAT liability and compliance for accommodation and transport supplied via intermediaries/platforms. Please click here for our guidance
- As part of the Government’s review of the UK funds regime announced in 2020, HM Treasury and HMRC have recently published a consultation document setting out their plans to change the definition of the existing VAT exemption for the management of Special Investment Funds (SIFs). The consultation offers an opportunity for taxpayers to have their say on how to simplify this complex area of the UK VAT legislation. If you have comments that you would like us to include in our response, please let us know before the 1 February.
3. Environmental Taxes
3.1 Plastic Packaging Tax
With the announcement of a ban on single-use plastic plastics, trays, bowls, cutlery, balloon sticks and certain types of polystyrene cups and food contains being introduced in England from October 2023, it is important for UK manufacturers and importers to consider their own Plastic Packaging Tax (PPT) obligations.
We have recently produced a guide to the new tax which was introduced on 1 April 2022
Furthermore, given the recent introduction of PPT in Spain from 1 January 2023, we ran a webinar talking through the similarities and differences between the rules in the UK and Spain.
Germany has recently unveiled draft plans to introduce a single use plastic levy from 2025 on manufacturers and non-resident companies selling directly on a B2C basis to German consumers. Items within the scope of the levy will include:
- Takeaway food containers;
- On-the-go food packets and wrappers;
- Drinks containers;
- Takeaway cups and lids;
- Single use carrier bags;
- Wet wipes;
- Balloons; and
- Tobacco products
4. Customs Duty
4.1 Customs valuation – Method 1
At the point of import, one of the key elements of a customs declaration is the value of the goods on which any customs duty is chargeable. There are strict rules to ensure the valuations are both fair and reasonable, and it is the importer’s responsibility to declare the correct value of goods entering the UK. The vast majority of import values are based on the price payable for the goods known as ‘Method 1’.
HMRC has recently updated its guidance on customs valuation, and now sets out conditions under which a transfer price can form the basis of a Method 1 customs value. The guidance now confirms those instances where the transfer price on a related party transaction will not comply with the requirements of Method 1, for example, where the value of the goods is subject to a subsequent adjustment, meaning the invoice price at the time of import will not represent the total amount paid. Where Method 1 cannot be used on a related party transaction, one of the other five methodologies must be used.
4.2 HMRC extend the deadline for moving to Customs Declaration Service
HMRC announced it has extended the deadline for exporters to move from CHIEF to the new Customs Declaration Service (CDS). The original deadline of 31 March 2023 has been extended to 30 November 2023, giving exporters more time to migrate over to CDS. The extension to the exporter deadline will also give HMRC more time to resolve issues with the service, which is already used by the majority of importers.
Approval code: NTAJ14012306
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 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.