Indirect Tax has changed relentlessly in recent years, and 2022 is expected to be no different.
In addition to the emergency pandemic measures and the UK exiting the EU, we expect the Government and HMRC to continue to implement further policy reforms. Your organization must be ready for many of these changes since they will impact business across the board.
Note: for calculation of VAT you can use our Online VAT Calculator to get your calculated vat in second.
The following is a summary of the key changes that have occurred or are expected in recent months:
The beginning of 2022
Land & Property Guidance from HMRC
The VAT treatment of land and property supplies has been under review by HMRC for some time. According to recent statements, it will publish additional guidance on call options early in 2022. HMRC acknowledges that its recent litigation positions may have created uncertainty and doubt, even though it states that its current guidance has not changed.
The COVID VAT deferral scheme has ended
In 2020, taxpayers were able to pay deferred VAT payments in interest-free installments under the New Payments Scheme for Covid VAT deferral. There may be interest and/or penalties on any unpaid amounts now that the scheme has closed for all businesses.
January 2022
Customs declarations are now subject to full controls
Apart from goods imported from Ireland, all imports from the EU are required to make full customs declarations and undergo controls (this concession applies while negotiations on the Northern Ireland protocol continue). Security and Safety Declarations, however, won’t be required until 1 July 2022. Customs declarations can no longer be delayed (unless the goods are being imported from Ireland) and businesses should be prepared for these changes and either have the in-house capability or use an agent to help.
Customs declarations submitted by freight forwarders can be assessed using the BDO Customs Declaration Assessment Tool. As part of our customs brokerage service, BDO can also assist clients with the completion of their customs declarations.
Moreover, Sanitary and Phytosanitary pre-notification requirements will be implemented from 1 January, although imports from Ireland will not be affected.
Most UK businesses are no longer subject to Intrastat
The Intrastat declaration only applies to movements between Northern Ireland and the EU (and vice versa) since 1 January 2022. Due to this, businesses in Great Britain will no longer be required to submit Intrastat reports for Arrivals after 2021.
2 March 2022
Arrangements for VAT grouping
Revenue and Customs Brief 5 (2022) outlines the actions businesses and organizations should take as a result of well-publicized delays in processing VAT group applications. VAT group applicants will have to take different steps depending on whether they have already registered for VAT. Cash flow problems may result if VAT refunds on start-up costs or capital expenditures are due on a complex matter such as corporate transactions and re-organisations.
In particular, businesses should ensure that they understand how VAT should be charged, accounted for, and reported via VAT returns in accordance with the guidance.
1 April 2022
Payments for termination and compensation
The new VAT rules apply from 1 April 2022 onwards based on the new guidance published by HMRC. HMRC may challenge you if you fail to comply with the new guidance even though there has been no change to the underlying VAT law. If you have previously received written advice or a clearance, you will also need to review it and take action if there are any uncertainties.
Over the past few years, it would be fair to say that HMRC’s attitude towards such payments has changed. Additionally, you should consider whether any adjustments should be made to past VAT returns, as well as updating your business’s systems to ensure they comply with the new guidance from 1 April.
Temporary reduction of the leisure and hospitality rate has ended.
Governments have introduced a measures of company VAT number, such as a temporary reduction in the VAT rate for tourism, hospitality, and hotels, as well as reduced admission fees for certain attractions from 20% to 5% in its Summer Economic Statement in July 2020. A reduction in VAT was implemented in response to the economic crisis caused by Covid-19. The Chancellor extended the 5% VAT rate until 30 September 2021 in the spring 2021 Budget. The hospitality sector’s VAT rate will increase to 12.5% from 1 October 2021 until 31 March 2022, after which it will revert to the standard rate of 20%.
Tax on plastic packaging is introduced.
All businesses in the UK whose annual use of plastic packaging exceeds 10 tonnes may have to register and pay a Plastic Packaging Tax of £200 per ton starting in April 2022. Plastic packaging that contains insufficient recycled content will be subject to a new tax, however, the additional costs are expected to be borne across the supply chain, so users of plastic packaging should also be aware of the implications of PPT.
Installing energy-saving materials is subject to VAT
Insulation, solar panels, water and wind turbines are among the energy saving materials that will be taxed at 0% from April 2022 to April 2027. Moreover, the ‘social policy conditions’ and the ‘60% test’ no longer apply to this rate, so it is no longer restricted by them.
There are much stricter restrictions on the use of rebated red diesel
‘Rebated’ red diesel (5% VAT) will be available only to a very small number of industrial sectors from 1 April 2022. Among the sectors that will no longer be allowed to use red diesel will be the construction, mining and quarrying, ports, manufacturing haulage (for transporting refrigeration units on lorries), road maintenance, airport operations, oil and gas extraction, plant hire, logistics, and waste management industries. Changing from red diesel to higher cost fuel may require you to revise your contracts with customers and adapt your supply chain if you use red diesel.
Mandating tax digitalization for VAT
A VAT return period starting on or after 1 April 2022 will be governed by Making Tax Digital for VAT for businesses trading below the £85k VAT registration threshold. In consequence, these businesses will need to maintain digital records of their VAT data, submit VAT returns to HMRC using appropriate software, and ensure that all information is “digitally linked.”
Uncertain tax treatment notification
According to HMRC, large businesses will now be required to notify HMRC of uncertain tax treatment after consultation with advisors and industry. In the new rules, HMRC aims to better identify issues where businesses adopt a different ‘legal interpretation’ than HMRC with returns due to be filed from 1 April 2022.
Accordingly, only ‘large businesses’ will be subject to this requirement. This largely aligns with the statutory threshold tests for a Senior Accounting Officer (SAO). The test will be based on a turnover of £200 million and a balance sheet of £2 billion. Corporates and partnerships, wherever incorporated, are included in this rule.
1 June 2022
Updated HMRC policy on VAT-related business activities
Revenue and Customs Brief 10 (2022) confirms that HMRC will apply the new tests to determine if a particular activity has the characteristic of a business activity for VAT purposes starting on 1 June 2022.
There has been a revision to HMRC’s policy confirming that the business criteria based on earlier case law will no longer be used in the determination of whether or not an activity is a business, and that the recent case law (Longridge on the Thames [2016] BVC33 and Wakefield College [2018] BVC 22) will take precedence.
HMRC will take a two-stage approach in order to determine whether an activity constitutes a business activity for VAT purposes in the future. This is the approach they will use when determining whether an activity represents a business activity.
There is a need for businesses to ensure that they understand the application of the guidance, especially in terms of the VAT liability and the right to recover input taxes arising from their business activities.
30 June 2022
Delay in submitting declarations from 2021 to 2022
Until 31 December 2021, certain importers were able to import goods from the EU using the delayed declaration process (by concession, this continues while negotiations on the Northern Ireland protocol are underway). No later than 175 days after importing, importers must submit a full customs declaration. This means that if a business uses this facilitation on 31 December 2021, they will have to complete the full entry by 30 June 2022.
This change will require importers to adapt and either have the capability in-house or hire an agent to assist them. To ensure that the correct information is submitted, the BDO Customs Declaration Assessment Tool is available.
1 July 2022
A new delay in Customs Duty – Security and Safety Declarations
Physical checks and customs certifications are no longer scheduled for 1 July 2022, but rather 31 December 2023. Customs procedures will not change for:
- By-products of all remaining regulated animals
- Products and plants regulated by the government
- Meats and meat products in general
- Foods not derived from animals that are high-risk.
It has also been agreed to postpone further physical checks on dairy and other animal and fish products until 31 December 2023, which was originally planned to begin in 2022.
1 October 2022
Import declarations are now handled by a new system
From 1 October 2022, all declarations for import movements will have to be made through the new Customs Declaration Service (CDS) in place of the Customs Handling of Imports & Export Freight (CHIEF) system. To be able to make import declarations on behalf of importers through the system, importers must register for CDS in advance. Setting up your business in the system and preparing for the additional information that must be input to use it is not something you should leave until the last minute.
Cars being moved to Northern Ireland for sale
An export refund scheme for second-hand motor vehicles will be launched by the government on 1 October 2022. Refunds of VAT will be available if businesses relocate second-hand motor vehicles for resale to Northern Ireland from England, Scotland, and Wales.
For such second-hand vehicles moved to Northern Ireland and resold, dealers will no longer be able to use the VAT margin scheme to account for VAT. Instead, they will have to account for VAT on the full purchase price.
31 December 2022
Late payment and late filing of VAT returns replaced the VAT default surcharge regime
Late VAT returns and late VAT payments to HMRC are penalised with a default surcharge, which has long been criticized as unfair and ineffective. Many disputes over these surcharges end up in court. To make late filing and payment penalties more equitable and consistent with other taxes, a new regime will be introduced on 1 January 2023. Additionally, taxpayers are entitled to receive and pay interest on VAT that they owe.