The past few years there have not been very many changes observed for Indirect Tax, however, in the beginning of year 2023, Government has announce few changes in the Indirect Tax. Year 2023 looks set to bring fewer changes, which accountancy practices has to keep eye on it for their VAT Registered Businesses. It is recommend that business owners and accountancy practices has to continuously monitor their forthcoming obligations as this pattern could quickly change.

There are major 5 new updates for UK VAT Registered Businesses. Let’s have a look into this;

Making Tax Digital (MTD)

The UK government has introduced MTD (Making Tax Digital) for VAT, which requires VAT-registered businesses to keep their records digitally and submit VAT returns electronically say using any bookkeeping software e.g. XERO, QuickBooks, Sage and many more. The MTD for VAT program started on April 1, 2019, and all VAT-registered businesses with a taxable turnover above the VAT threshold i.e. £85,000 were required to be compliant by April 1, 2022.

With the introduction of MTD-specific penalties, it’s likely that HMRC will start to include MTD as a part of their VAT reviews in year 2023. Therefore, if accountancy practices haven’t done so already, accountants are recommended to undertake a review of their clients’ VAT compliance processes with a focus on MTD to ensure they are compliant. It is also worth noting that MTD is expanding to include other taxes and sectors. From April 2023, there will be new MTD reporting for landlords with turnover over £10,000.

VAT penalties from 1st January 2023

For VAT return periods starting from 1st January 2023 onwards, the VAT default surcharge regime has been replaced by a new penalty system with separate penalties for late submission of VAT returns and late payment of VAT. The new system also changes the way in which interest is calculated when taxpayers are late in paying HMRC and vice versa.

Submission Period	Points Threshold	Period of Compliance
Annual	2 Points	24 Months
Quarterly	4 Points	12 Months
Monthly	5 Points	6 Months

• Up to 15 days overdue: There will be no penalty if the VAT is paid in full or a payment plan is agreed with HMRC
• Between 16-30 days overdue: The first penalty is 2% of the VAT owed at day 15 if the outstanding VAT is paid in full, or a payment plan is agreed, between days 16-30.
• More than 31 days overdue: The first penalty is 2% of the VAT owed at day 15 plus 2% of the VAT owed at day 30. A second penalty will be calculated at a daily rate of 4% per year for the duration of the outstanding balance. This is calculated when the outstanding balance is paid in full or a payment plan is agreed.

Changes to option to tax processes

HMRC have confirmed that they intend to implement the following changes to the VAT option to tax process with effect from 1st February 2023:

• HMRC will stop issuing option to tax notification letters in response to taxpayer submissions.
• HMRC will stop processing requests to confirm the existence of an option to tax apart from in limited circumstances (e.g. the effective date of the option is likely to be more than 6 years ago)

E-Commerce Update

In December, HMRC consolidated its guidance with respect to selling goods online either through on an online marketplace or direct to consumers.

The guidance itself is not new, however HMRC’s new page provides a timely reminder that specific rules apply to transacting online, some of which place online marketplaces on the hook for accounting for VAT due on sales made by vendors through their platforms.

In particular it is worth highlighting that in some circumstances, where goods are sold through an online marketplace, it is the platform operating that marketspace that is held liable to bring VAT to account, including:

• Where a product of a value of £135 or less is imported into the UK and delivered to the consumer’s address; and
• Where the vendor is not established in the UK and imports the goods here, which are then later sold through an online marketplace.

Also, if goods are sold by the supplier directly from their own website, the supplier (including suppliers not established in the UK) remains liable for VAT if:

• It is the importer of record for goods of value more than £135 which are shipped to the UK; and
• Goods of a value of £135 or less are imported into the UK in order to fulfil an online order.

Repayment interest on VAT credits or overpayments

HMRC has published new guidance on repayment interest on VAT credits or overpayments, applicable to accounting periods starting on or after 1 January 2023. This replaces the repayment supplement guidance.

HMRC will now pay interest if they are late in settling a legitimate VAT repayment claim.

A business is not eligible for repayment interest if there are any outstanding VAT returns, but repayment interest will be calculated from the date when HMRC receives the last outstanding VAT return.

The repayment interest rate is 1% less than the Bank of England rate, with a minimum rate of 0.5%.

The repayment interest period ends when HMRC repays the VAT to the business or offsets against other VAT liability or other taxes the business owes to HMRC.

HMRC starts to calculate the repayment interest depending on whether the amount to be repaid already has been paid or it is shown as a credit owed to the business on a VAT return or a claim.

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