The VAT Bulletin: May 2023

Editor’s message

Happy 50th birthday VAT! It would be remiss of me not to mention that on 1 April 2023, VAT in the UK was 50 years old. It replaced Purchase Tax and was a requirement of entering the Common Market.

So far, my career in VAT has lasted 33 years, but my first memories of the tax are from the mid-70s. Back then we had a stationer’s shop called Bastins in Newton Abbot. As a child, I was annoyed that their selling price was not the actual selling price as it was net of VAT. I thought the shop was trying to fool its customers by pretending to be cheaper!

Clearly, my early brush with VAT did not leave any lasting scars as I joined HMC&E on 19 June 1990, at the Southall VAT office. There I met my future wife, Anne, and we got married on 19 June 1993, three years to the day after I became a VAT officer, and 20 years after VAT was introduced. This year we celebrate our 30th wedding anniversary at the same time VAT celebrates its 50th. There must be a message there somewhere!

During the years I have seen some changes – entering the Single Market in 1993 and leaving the Single Market in 2021. I should add that some things have not changed; there is still a VAT notice ‘video cassette films and accounting for VAT’ and the partial exemption de minimis limits are still £7,500 per annum – that probably has not changed in at least 25 years!

VAT has not (yet) been abolished after leaving the EU so I doubt that I will need to dig out my CV anytime soon. What I do know is that now the UK can fundamentally change the VAT system free of the control of the EU. The next few years will be an interesting journey!

Default surcharge changes – 1 January 2023

For VAT return periods starting from 1 January 2023, the VAT default surcharge regime has been replaced by a new system of penalties for late returns and late payments. At the same, time HMRC are introducing late payment interest and repayment interest on VAT returns.

In essence, the old system of one penalty will be replaced by three potential penalties/interest.

HMRC has stated that the idea behind this is to harmonise the position across taxes and increase ‘customer’ compliance. The new penalties system is designed to encourage ‘customers’ to submit returns and payments on time – the sooner you pay the less the penalty. It also penalises persistent offenders and is less draconian on occasional slip ups.

It is very important to note that the new penalty system applies to nil and repayment returns so there is no room for complacency in submitting any type of return now. There is an appeal process if you have a reasonable excuse which might come in handy!
Repayment supplement has also been withdrawn as of 1 January 2023. This was a 5% payment of the claim amount which was made by HMRC if they took longer than 30 days to repay a claim (allowing for reasonable enquiry time). Repayment Interest has replaced this – all repayment returns will attract an interest rate of Bank of England base rate minus 1% with a minimum rate of 0.5%. This will also be applicable on refunds of error corrections which is a new development.

Commentary; this is quite a concern. It does not appear that HMRC will face any meaningful penalty if they do not make repayments owned to business in a timely manner. This will need to be monitored closely, as will the new penalty regime for businesses. Both changes are bound to take some time bedding in.

The detail regarding the finer points of the penalties is provided here.

Introduction of VAT-related payment scheme for the sale of used cars to Northern Ireland and the EU – 1 May 2023

After a lengthy consultation, HMRC will introduce a scheme for the sale of second-hand cars to the EU from 1 May 2023. When we were still in the single market, the sale of second-hand cars was treated no differently cross border as it was in the UK, with VAT just being declared on the profit margin. In order to obtain a level playing field HMRC have announced that subject to certain rules if a second-hand car is held out for sale in the EU but bought in the UK, VAT can be recovered on the UK purchase. HMRC will allow businesses to assume that VAT was charged in full, so a car bought for £12,000, will carry input tax of £2,000.

Commentary; there are several conditions, but this scheme seems very generous and will result in a great deal more VAT being recovered than was ever declared. We will wait to see more detail when it is implemented and how long it will last, but if you buy second and cars and sell into the EU, and Northern Ireland, this could be an opportunity.

Stop press

Since the introduction of the new late VAT penalty points system, we have noticed that online VAT accounts include an amount of additional interest for VAT returns that have been submitted and are awaiting collection of a direct debit.

However, providing the return has been submitted by the due date and the direct debit eventually collects the payment in full, usually on the 10th day of the month, the interest should disappear. It may take a few extra days for the account to be updated though, so the additional interest will remain on the account until the system recognises that the payment has been collected. That means if you are charged interest but haven’t been late, don’t panic!

If you do have issues with late payments or any other VAT issues, contact our team today.