Deposit Return Scheme
The UK Plastic Packaging Tax, introduced in April 2022, showcased the UK’s initiative to deploy fiscal policies to serve the wider environmental agenda.
More specifically to the north of the country, Scotland is now planning to introduce a Deposit on Returned single-use containers Scheme (DRS).
The scheme will apply to single-use drinks containers. On purchase, a small deposit will be paid (20p), which will then be returned once the empty bottle or can is returned, thus incentivising the need to recycle.
While seemingly simplistic, there are more complicated fiscal elements which need to be considered as part of the scheme, specifically, the VAT element associated with the scheme. Questions raised include the need to consider whether the extra charge will also need to consider VAT- or whether VAT will only become relevant if the original container was subject to VAT.
We are expecting further clarification from Her Majesty’s Revenue and Customs (HMRC) in the Spring Budget but as per current timeframes, the scheme is set for an implementation date of August 2023.
Tungsten will monitor requirements in respect of the scheme and consider our obligations in respect of it.
United Kingdom – Windsor framework agreement
Brexit, which was implemented in 2020 and which ultimately sparked the UK’s departure from the European Union, presented multiple challenges from a fiscal perspective. One of the most significant challenges was the formation of what is commonly referred to as the Northern Ireland protocol.
The Northern Ireland protocol provided that EU VAT rules on VAT will apply to Northern Ireland– which was always a contentious issue as by some this was viewed as creating a ‘hard border’ between Northern Ireland and the rest of the UK, which were subject to UK-specific rates. For Tungsten, this presented planning on multiple fronts, as transactions subject to the protocol required the insertion of an XI prefix, as opposed to the GB prefix previously used.
The proposed Windsor Framework agreement modifies rules for movement of goods between Great Britain and Northern Ireland. A so-called ‘green lane’ is proposed for internal trade, which results in customs checks and surplus checks effectively abolished between the two.
In other important changes:
The introduction of the Northern Ireland Protocol triggered multiple changes in the Tungsten system. Therefore, the reversal of these policies also means it is likely changes will need to be initiated in the Tungsten framework.
It is important to note that the Windsor Framework Agreement provisions need to be agreed unanimously by the European Parliament, and we will closely monitor the approval of these changes and any changes we need to instil to remain compliant with the agreement.
- The UK and Northern Ireland will share the same VAT rates
- VAT rates can now be applied UK-wide
- Goods between Northern Ireland and Republic of Ireland subject would be subject to a ‘red lane’, which effectively means that customs checks and additional checks between the two are maintained.
Plastic Packaging Tax (PPT)
The Plastic Packaging Tax (PPT) was effective in the United Kingdom from 1 April 2022.
HMRC had indicated that inclusion of PPT would be mandatory at some point on a UK invoice. However, they have now reversed this decision and indicated that they will no longer adopt a legal requirement to include PPT on a UK invoice.
HMRC will still encourage businesses subject to the tax to incorporate PPT in their invoices. HMRC will also provide other methods of providing the tax on documents other than the invoice (such as price lists, for example). Spain last month introduced a similar incentive, allowing taxpayers to cite PPT on an invoice, bit also permitting for this to be communicated via a certificate.
Tungsten has the capability to support PPT today. Unlike Spain, PPT in the UK is usually subject to negotiations between the supplier and the buyer.
Draft rules for digital platforms
HM Revenue & Customs in the United Kingdom has published some draft rules
relating to reporting rules for digital platforms.
These rules impose the following obligations on digital platforms:
- To collect information relating to income of sellers using their platforms to:
- Rent out property
- Provide personal services
- Sell goods
- Rent out transport
The final regulations are expected to come into effect on 1st
Reporting rules for digital platforms
We recently communicated that the UK government was undergoing a public consultation relating to reporting rules for digital platforms. This was expected to provide a complex and detailed insight into the envisaged legislation relating to digital platforms.
The public consultation has now concluded. As previously indicated, the response is detailed and can be found here
VAT grouping change when goods are transferred to Northern Ireland
VAT grouping is often deployed in the UK when two or more eligible taxpayers are treated as one ‘person’ for VAT purposes. This can bring multiple advantages, including avoiding the need to pay VAT when transacting between members of the same group, and less cumbersome VAT-related administrative obligations.
UK VAT groups can currently contain members established in both Great Britain and Northern Ireland.
Supplies between members of a VAT group generally are disregarded for VAT purposes.
However, further to VAT notice 700/2,
specifically section 7.3.2, when goods now move from Great Britain to Northern Ireland, VAT will now be due. This will be calculated in the same way as when a business moves its own goods.
Reporting for digital platforms from 2024
Further to the consultation on the implementation of the Organisation for Economic Co-operation and Development (OECD’s) Model ‘Reporting rule for digital platforms’, the UK government has announced that new UK reporting requirements will be introduced.
These will take effect from 1st January 2024, with first reports expected to be submitted by the end of January 2025.
There has been a substantial amount of feedback during the consultation. HMRC is collating this and striving to publish the government response to the consultation along with draft regulations providing details of the new regime.
To ensure implementation of the regulations is in a ‘proportionate and effective manner’, HMRC will engage with digital platforms and their providers before the regulations come into effect. It is hoped this prior interaction between the regulatory bodies and digital providers will engineer a smooth adoption of the regulations.
Online sales tax for e-commerce
The UK Treasury is considering whether a 1% online sales tax needs to be applied on e-commerce goods and services.
The e-commerce trade has seen a radical increase – fuelled significantly by the Covid-19 pandemic- and it is no coincidence that the government is reviewing its fiscal measures at a time when e-commerce has grown exponentially over the past 2 years.
An open consultation to this effect has been launched from 25 February 2022 until 20 May 2022.
The proposal of the online sales tax aims to rebalance the taxation of the retail sector between online and in-store retail.
Information on the public consultation policy can be found via the following link.
VAT hospitality rate
VAT/G(S)ST rate information
We communicated in 2020 that the UK has reduced its VAT rate for the hospitality sector from 20% to 5%.
April 2022, the VAT rate will revert to 20%, fuelling the indication that the United Kingdom is entering a post-recovery era of the pandemic.
Isle of Man Notice on Plastic Packaging Tax (PPT)
The Isle of Man fiscal structure is virtually identical to that of the United Kingdom – and so it isn’t surprising to see that the Isle of Man Treasury have published some guidance on the UK Plastic Packaging Tax (PPT).
This guidance includes a link to the UK HMRC website, which provides detailed information relating to PPT. The link can also be accessed here.
Temporary standard tax rate of 12.5%
VAT/G(S)ST rate information
The UK government approved a VAT increase for the hospitality sector to 12.5%, effective 1 October 2021. This will apply until 31 March 2022.
The VAT rate for hospitality was temporarily reduced to 5%, and this reduced rate was extended until 30 September 2021. The temporary 12.5% was introduced to manage the proposed eventual transition back to the original 20% VAT rate.
Tungsten Network has included the new 12.5% rate in our system.
Extension of hospitality and tourism VAT reduction
VAT/G(S)ST rate information
The UK Chancellor is again extending the VAT reduction on Hospitality and Tourism from 20% to 5% until 30 September 2021. It will then be reduced to 12.5% until April 2022 to help businesses in gradually moving back to the standard rate.