The changing indirect tax landscape. VAT, customs and other indirect taxes updates for 2022

Updated on May 30, 2022

Indirect taxes have changed at a breakneck rate in recent years, and this trend is expected to continue in 2022.

As a result of the emergency pandemic measures and the UK’s exit from the EU, as well as the execution of more policy reform by the Government and HMRC, we expect developments to continue. Many of these developments will have a direct influence on your business, therefore it is vital that your organisation is prepared for them.

 

The following is an overview of the most significant recent and upcoming changes:

Early 2022

HMRC Land & Property Guidance

HMRC has been examining the VAT treatment of land and property-related supplies on a regular basis. A clarification of its position on call options is expected to be published by the agency in early 2022. As a result of recent litigation, HMRC acknowledges that its existing guidance may have created ambiguity and doubt.

End of the New Payments Scheme for COVID VAT deferral

Using the New Payments Scheme for Covid VAT Deferral, taxpayers will be able to pay deferred VAT in interest-free instalments starting in 2020. All businesses are no longer eligible for this programme, and any unpaid balances could be subject to interest and penalties.

Find out more about this here.

1 January 2022

Full Customs declaration Controls introduced

With the exception of goods imported from the island of Ireland (this concession applies while EU/UK negotiations on the Northern Ireland protocol continue), full customs declarations and controls have been applied for imports from the EU. However, until July 1, 2022, no Safety and Security Declarations are necessary. Unless you’re importing from Ireland, you can no longer delay customs declarations, thus businesses need to be prepared for these changes and either have the in-house capability or the services of an agent to assist them.

Using the BDO Customs Declaration Assessment Tool, you can be sure that your freight forwarders are providing accurate information on customs declarations for your shipments. BDO also provides a customs brokerage service to help our clients complete customs declarations.

Pre-notification procedures for Sanitary and Phytosanitary commodities began on January 1, however imports from Ireland will be exempt. Continue reading to learn more.

Removal of Intrastat for most UK businesses

Northern Ireland-EU Intrastat disclosures will only be required beginning on January 1, 2022, for products moving between the two countries (and vice versa). As a result, enterprises in the United Kingdom will no longer be required to file Intrastat reports for Arrivals as of 2021.

2 March 2022

VAT Grouping arrangements

HMRC released Revenue and Customs Brief 5 (2022) in response to the well publicised delays in processing VAT group applications, which details what businesses and organisations should do while awaiting a response from HMRC. Depending on whether or not the VAT group applicants are already registered for VAT, they will need to take different steps to complete the process. There may be concerns with cash flow if VAT refunds are due on startup costs or capital expenditures, and this is especially true when it comes to company transactions and reorganisations.

In particular, businesses should ensure that they are aware of the guidance’s application in regard to the manner in which they should charge and account for VAT, and then report via VAT returns, as well.

1 April 2022

Compensation and termination payments

From April 1, 2022, all compensation and termination payments will be subject to HMRC’s new VAT treatment guidelines. You can anticipate HMRC to question you if you don’t follow the new instructions, despite the fact that this does not alter the core VAT law. For those who have received written advice or clearance in the past, this means they’ll need to check it against the new guidance and take action if there’s any incompatibilities.

HMRC’s view on such payments has ‘evolved,’ to use an appropriate term. To ensure that your business’ systems are in compliance with the new VAT advice from 1 April, you should also evaluate if any adjustments for past VAT returns are necessary. You may find a summary of our findings right here.

End of temporary reduced rate for leisure and hospitality.

According to the government’s Summer Economic Statement to be released in July 2020, a temporary lowering of the VAT rate for hospitality, hotel, and vacation rental industries as well as certain tourist attractions from 20% to 5% was announced. The Covid-19 pandemic-induced economic crisis necessitated a reduction in the VAT rate. Second, the relief was extended until 30 September 2021, as indicated in the spring 2021 budget by the Chancellor. Until March 31, 2022, the VAT rate for the hospitality sector will be 12.5 percent instead of the existing 20 percent, which will be in effect from October 1, 2021 to March 31, 2022. You can learn more about the lower rate’s scope by visiting this page.

Introduction of Plastic Packaging Tax.

Those companies doing business in the UK that use more than 10 tonnes of plastic packaging per year will be subject to a tax of £200 per tonne beginning in April 2022. Although the new tax will be paid on producers and importers of plastic packaging that does not contain adequate recycled content, the higher costs are likely to be absorbed across the supply chain, and hence users of plastic packaging should also be aware of the PPT’s consequences. To learn more about the five critical measures you should take to get your company ready, please visit this page.

VAT on installation of energy saving materials

From April 2022 to April 2027, the VAT on energy-saving materials installed in residential dwellings was cut from 5% to 0%. (this includes insulation, solar panels, water and wind turbines). Additionally, the’social policy requirements’ and the ’60 percent test’ have been loosened, allowing more people to qualify for the reduced rate.

Use of rebated red diesel is much more restricted

Only a few industries will be able to use’rebated’ red diesel (5 percent VAT) after April 1, 2022. (including agriculture, horticulture, fish farming, forestry and rail transport). Construction, mining, quarrying, ports, manufacturing haulage (for lorry transport refrigeration units), road maintenance, airport operations, oil and gas extraction, plant hire, logistics, and waste management are among the industries that HMRC says will no longer be permitted to use red fuel. Consider the impact of transitioning to a higher-cost fuel and whether current contracts with customers or your supply chain will need to be adapted to reflect the change if your firm relies on red diesel. ”

Making Tax Digital for VAT mandatory

For VAT return periods beginning on or after April 1, 2022, Making Tax Digital will apply to enterprises trading below the £85k VAT registration threshold (i.e. all remaining VAT-registered businesses). Because of this, these firms will have to keep digital records of their VAT data, send VAT returns to HMRC using appropriate software, and ensure the “digital linking” of all data at all times during the VAT return process itself.

Notification of uncertain tax treatments

HMRC has implemented a new rule requiring large enterprises to inform HMRC of tax treatment uncertainty following consultation with tax advisors and the industry. It is the goal of the new guidelines to help HMRC identify enterprises that have adopted a different ‘legal interpretation’ from HMRC when it comes to filing returns, such as VAT reports, beginning on April 1, 2022.

Only “big firms” will be subject to the new requirement, which is in line with the current threshold tests for the Senior Accounting Officer (SAO) rules under the Finance Act 2009. UK turnover of £200m and balance sheet of £2bn will be the basis for the test. It’s important to note that this applies to both partnerships and LLPs, regardless of their legal form. Here you will find additional information.

30 June 2022

Submission of delayed declarations from 2021

Until December 31, 2021, some importers were able to use the delayed declaration process to import products from the EU (by concession this continues for goods imported from the island of Ireland while negotiations on the Norther Ireland protocol are ongoing). After the import, importers must file a full customs declaration no later than 175 days after the import. The full entry will be required no later than June 30, 2022, if a business took advantage of this assistance on December 31, 2021.

An agency or an in-house competence is necessary for importers to deal with these developments, and they should make sure they have both. Use the BDO Customs Declaration Assessment Tool to verify that the correct information is being provided to the customs authorities.

1 July 2022

Customs Duty – Safety and Security Declarations delayed again

The anticipated changes to customs certification and physical checks have been postponed until December 31, 2023, rather than July 1, 2022. As a result, customs procedures for: won’t be altered.

All of the remaining animal by-products that are subject to government regulation
A list of all controlled plants and plant products, as well as all meat and meat products.
Dairy products and other animal and fish products will now have to wait until December 31st, 2023, for further physical tests.

1 October 2022

Moving second hand cars to Northern Ireland for sale

On October 1, 2022, the government plans to implement a new export refund programme for second-hand vehicles. A VAT rebate will be available to businesses that bring used vehicles to Northern Ireland for sale from England, Scotland, and Wales and then resell them in the rest of the United Kingdom.

This means that the VAT margin programme will no longer be able to be used by dealers to account for VAT on second-hand automobiles that have been transferred to Northern Ireland and subsequently sold there.

31 December 2022

VAT default surcharge regime replaced by new regime for late payment of VAT and late filing of VAT returns

For many years, the present default surcharge scheme for penalising taxpayers who fail to pay HMRC on time for late VAT returns or late payments has been widely seen as unfair and ineffective. With the implementation of a new system on January 1, 2023, the penalty structure for late filings and payments will be more equitable and in line with other forms of taxation. Changes have also been made to the interest that taxpayers pay and receive in connection with VAT. The revised rules can be found here.