Autumn Budget 2021: VAT

Freeports

The government will legislate in Finance Bill 2021-22 to introduce additional elements to the VAT free zone model for Freeports.

The legislation will:

• Implement a free zone exit charge to ensure businesses do not gain an unintended tax advantage from the zero-rate in the free zone model
• Make amendments to existing VAT law to ensure free zone rules and warehousing rules are mutually exclusive
• Amend elements of the historic free zone legislation, which are incompatible with the new free zone VAT rules

The measure will take effect from 3 November 2021.

The Implementation of VAT rules in free zones tax information and impact note provides more information.

Northern Ireland second-hand margin scheme – interim arrangement

Pending the introduction of a long term solution, it was announced that the government will legislate in Finance Bill 2021-22 to extend the VAT margin scheme to apply in Northern Ireland on a limited basis, in respect of motor vehicles sourced from Great Britain, for the period until the Second-hand Motor Vehicle Export Refund Scheme is implemented. As a result, motor vehicles first registered in the United Kingdom prior to 1 January 2021 will be available to sell under the VAT margin scheme in Northern Ireland during that time period.

This measure would take effect, should a relevant agreement be reached with the EU and will apply retrospectively from 1 January 2021.

The Northern Ireland second-hand margin scheme interim arrangement tax information and impact note provides more information.

Second-hand Motor Vehicle Export Refund Scheme

Following on from the above, a more long term measure was announced whereby the government will legislate in Finance Bill 2021-22 to be able to introduce a Second-hand Motor Vehicle Export Refund Scheme. Businesses that remove used motor vehicles from Great Britain for resale in Northern Ireland or the EU may be able to claim a refund of VAT following export.

This will ensure that Northern Ireland motor vehicle dealers will remain in a comparable position to those applying the VAT margin scheme elsewhere in the UK. Further details regarding the arrangements of the scheme will be provided in due course, including any regulations brought forward to give it effect.

The Second-hand Motor Vehicle Export Refund Scheme tax information and impact note provides more information.

VAT: Exemption for dental prostheses imports

The government will legislate in Finance Bill 2021-22 to extend the current VAT exemption for dental prostheses supplied by registered dentists and other dental care professionals or dental technicians to imports of dental prostheses by these persons. This will ensure that the VAT treatment for such prostheses supplied into and within the United Kingdom, including between Great Britain and Northern Ireland, is consistent. This measure will take effect on or after the date of Royal Assent of Finance Bill 2021 and will apply retrospectively from 1 January 2021.

The VAT Exemption for dental prostheses imports tax information and impact note provides more information.

VAT treatment of fund management fees

Lastly, the government has announced a consultation on options to simplify the VAT treatment of fund management fees. The announced consultation follows on from the wider review of UK funds regime by HM Treasury in January 2021. At this stage, the consultation will simply look to take views and opinions as there are no imminent plans for VAT rule changes (that we are aware of) by HMRC. We will of course update our clients once the consultation details are published and would invite comments and feedback accordingly.