• Date

    24 Mar 2022
  • Category

    VAT & Indirect Tax

Spring Statement 2022 | Indirect tax announcements and reminders

During his 2022 Spring Statement, the Chancellor revealed his grand plans to expand VAT relief to apply to energy saving materials – but what other VAT and indirect tax changes were announced by Mr Sunak, and how will these affect business?  

From 1 April 2022 reminders

Before delving into the latest announcements, it is important to remember from 1 April 2022:

  • The Red Diesel Entitlement Reform will affect business and individuals who supply or use rebated oil and biofuels. This reform restricts the use of red diesel and rebated biofuel to a handful of sectors including agriculture, horticulture, fish farming and forestry.
  • The introduction of the Plastic Packaging Tax was mentioned in the previous budget, and becomes effective from 1 April 2022.  This tax affects importers and manufacturers of plastic packaging which contains less than 30% recycled plastic. Registration requirements connected to the tax mean that even products that don’t attract the tax still have reporting obligations.  

Businesses need to understand and quantify the additional financial exposure and administrative burden connected to each of these measures.

Reduction in fuel duty

In yesterday’s address to parliament, the Chancellor announced a 12-month cut in fuel duty of 5 pence per litre starting from 6pm 23 March 2022 until March 2023. This is great news for households and business alike, as long as the as the cuts are passed on by fuel retailers and reflected in the prices at the pumps for everyone. 

VAT - Zero rated energy saving materials

Sunak announced there will be an expansion of VAT relief for energy saving materials. From April 2022, zero rate VAT will apply to energy saving materials such as solar panels, insulation and heat pumps for the next five years. The government has also reversed a European Union ruling that restricted the application of this VAT relief. Wind and water turbines will now be added to the list of eligible energy savings materials.  These measures do not apply in Northern Ireland however the Northern Ireland Executive will receive a Barnett share of the value of this relief until it can be introduced UK-wide.

On the face of it, this is good news.  It could reduce the cost of installing energy efficient materials which in turn should help to reduce the cost of household power bills. However, some points need to be confirmed. We are looking for government guidance to confirm:

  • The full range of materials the zero-rate applies to.
  • Whether the zero rate could apply to the purchase of materials without installation services.
  • That Zero-rating only applies when the materials are installed on residential accommodation – or can other properties benefit?

VAT penalties

There is a delay to the implementation of a VAT penalty reform by 9 months to January 2023.  The VAT default surcharge procedure was due to be replaced by new late submission and payment penalties and interest charges from April 2022. The introduction of the new regime has been deferred to January 2023 to allow HMRC more time to make the necessary systems changes.

Tackling Fraud

The government is providing £48.8 million of funding over three years to support the creation of a new Public Sector Fraud Authority and enhance counter-fraud work across the British Business Bank and the National Intelligence Service. The investment enables government and enforcement agencies to step up their efforts to reduce fraud and error and to bring fraudsters to justice. 

No change to the VAT Registration threshold

The VAT registration threshold (£85,000) and Deregistration threshold (£83,000) are frozen until 31 March 2024. 

No extension to the reduced rate of VAT for hospitality, accommodation and attractions

The temporary reduced rate of VAT (currently 12.5%) that applies to goods and services supplied by the tourism and hospitality sector ends on the 31 March 2022.  From 1 April 2022 the standard (20%) rate of VAT will apply to these supplies.  Businesses in these sectors will need to amend their accounting procedures and systems and may have to increase their prices from 1 April. 

MTD for VAT

Finally, a reminder that the Making Tax Digital for VAT procedures will apply to all VAT registered businesses from 1 April 2022.  Any business that does not submit VAT returns by MTD compliant processes should take immediate action to ensure their VAT returns are completed and submitted in the required format to HMRC. 

Get in touch

The legislation announced and those about to be implemented can be tricky to navigate. For further information on any of the areas announced by the Chancellor, please speak with your local Tax Advisor or a member of our VAT & Indirect Taxes team.

When it comes to tax, our specialist team is dedicated to supporting individuals and businesses save money, time and inconvenience.

About the author

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Scott Craig

Partner and Head of VAT Edinburgh
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