VAT Autumn Statement 2023

Autumn Statement 2023

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Whilst the Autumn statement contained little on the Indirect Tax side – VAT and Environmental Tax to make the headlines there is hope of things to come which will be of interest to our VAT sensitive clients across the social housing, property development, charity and education sectors as well as for our commercial clients who supply and install Energy Saving Materials.

The actual mirrored the run-up to the Autumn Statement in the end, as little comment arose in the media on VAT-related areas in advance, outside of some lobbying for the Zero rate to be applied to Women’s Sanitary products. 

Tax specialists did start to comment about the relative merits of lowering the VAT registration threshold to levels around £20-30,000 to remove the cliff edge of trading that stops small businesses expanding over the current £85,000 VAT threshold or doubling it – as a business admin help for small businesses.

In the end no changes were made – perhaps Jeremy Hunt was not the person to bring 1,000’s of small businesses into the VAT remit and add 20% to their charges to the hard-pressed consumer – whatever the economic merits of a reduction in the threshold. 

However, detailed scrutiny of the “Green Book” did uncover some interesting moves sitting behind the statement – particularly on Energy Saving Materials (ESM) and the ability to access the Zero VAT rate on their supply and installation in a residential setting.

Energy saving materials – some good news:

The ESM consultation – that ended in May 2023 and to which we contributed on behalf of our clients – brought to HM Treasury’s attention a range of innovative technologies for consideration to add to the currently listed and limited, qualifying materials. Details are light and any changes will be from 1 Feb 2024, but mention is made of water source heat pumps – but we would hope for more items than that to appear. “Full details on these reforms will be published shortly” the Green Book notes.

There is also the intention to return relevant charitable use buildings into the types of facilities that qualify for the ESM Zero rate relief. This will mean buildings used by a charity in pursuance of their non-business activities which is potentially good news for the education sector especially FE Colleges that have high levels of non-business income and those Universities with publicly funded research buildings. 

Elsewhere the benefits for charities may be more limited. Most charities have a range of business activities they undertake – from running charity shops and fundraising events to charged-for services they provide. To qualify as a charitable use building at least 95% of the use to which the building is put must be non-business and it will be on a building-by-building basis.  

It is a welcome return of access to the relief for charities but it will be interesting to see the scope of the benefit and the new technologies added – the costing model from the Treasury suggested a cost to the Exchequer in 2024 of only £20m, which when you consider the level of spending across social housing alone on retrofit energy improvements seems small.

Retail export scheme:

Those who had been clamouring for a return of the VAT Retail Export Scheme – large retailers in the cities mourning the loss of trade from overseas visitors who could have claimed the VAT relief on their UK purchases – will not be as happy with the Chancellor though. Their calls went unheeded for a return of the scheme although the “government” will continue to listen it should be noted.

Women’s sanitary pants – zero rating:

Lobbying for the extension of the Zero rate to Women’s Sanitary Products – specifically reusable period underwear – was more successful and we should expect that to apply from 1 January 2024. There is always the debate as to whether manufacturers and retailers will pass on the removal of VAT to the end consumer or use the VAT saving to protect their profit margins but as a headline it is effective in the political context.

VAT on private hire vehicles:

A last point of VAT note is in the comment that the government will be consulting on the VAT treatment to apply following the Uber case in the High Court from July 2023. This was not a VAT case but looked at the role of the private hire driver or the operator in terms of who was the principal in making a supply of the taxi journey to the consumer. 

The case decided that the Operator was the principal. How this translates into VAT context will be on lines of as principal the taxi fare charged is their income in full. There will also be the VAT issue as to how this ruling would interact with the Tour Operators Margin Scheme (TOMS) in terms of VAT accounting.

It will be interesting to see the reaction in the private hire market to this planned consultation, therefore.

No headline-grabbing lines from the VAT side – the Chancellor left that for the Tax cuts he has announced – the details of which you can read through in our full Autumn Statement Summary.

As ever there are details in here which will create change for many of our VAT clients, especially those sensitive to VAT on their energy efficiency plans such as Housing Associations, Charities, Universities and Colleges. For our clients on the supply side of Energy Saving Materials, there will also be the need to be alert to liability changes when they arise in Feb 2024 to ensure their VAT treatment is correctly applied.

Environmental taxes

The Autumn Statement may disappoint the environmental lobby with its lack of content. Most environmental taxes will see a nominal increase in rates (where there will also need to be a corresponding increase in the devolved organisations no doubt). The announcement that there may be a new Climate Change Agreement scheme from 2025 will be of some interest to intensive energy users but the criteria for joining the scheme will remain quite stringent unless the upcoming consultation results in a softening of these. Given that we are facing a climate emergency, there was little urgency in this year’s announcements.

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If have areas where VAT and Environmental Taxes have “got complicated”. Our expert Indirect Tax team can be contacted by completing the form below or calling 0330 124 7740.

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