The most significant VAT announcement was an increase in the registration threshold to £90,000. The de-registration threshold has also increased to £88,000.

Summary

VAT registration threshold

For the first time in seven years, the VAT registration threshold has been increased by £5,000, from £85,000 to £90,000.  Similarly, the deregistration threshold has increased from £83,000 to £88,000.  The changes will come into effect from 1 April 2024.

Other VAT announcements

Trading in carbon credits will be brought within the scope of the terminal markets order and will take effect from the date the Spring Finance Bill 2024 receives Royal Assent.

Also with effect from the date of Royal Assent, new legislation will be introduced in respect of the DIY housebuilders scheme.  The changes will grant additional powers to HMRC to request further evidential documents to support submitted claims.

The Government will publish a consultation on the potential implications of the High Court’s ruling in ‘Uber Britannia vs Sefton MBC’, a case that could have far-reaching implications for the private car hire sector. The consultation will be published in April 2024.

Our comment

The registration threshold has been frozen since 2017. Prior to this, the threshold was normally increased each year in line with inflation, and more recently there have been calls from some business organisations to raise it to £100,000.

The Chancellor estimated that the changes will positively impact tens of thousands of small businesses that operate below the increased threshold. Certainly, the changes will be welcomed by small businesses who are able to increase their turnover up to £90,000 without having to register for VAT.

The Government has announced it will abolish SDLT multiple dwellings relief (MDR) from June 2024. This policy is intended to prevent perceived abuse of MDR but will also have a knock-on impact on large scale property rental businesses, in particular investors in student accommodation.

Summary

MDR is available on purchases of two or more residential properties in a single transaction. On application of MDR, the SDLT liability is calculated by reference to the average purchase price per dwelling, multiplied by the number of dwellings (subject to a cap of 1% of the total chargeable consideration). The effect of the relief is to allow greater access to the lower rate bands of SDLT to reduce the overall SDLT liability. The relief was originally introduced to support investment in the private rental sector.

Following a consultation in early 2022 focused on the impact of MDR and the application of commercial rates of SDLT to mixed-use property, the Government has decided to completely abolish SDLT MDR from 1 June 2024. This policy decision is on the basis that MDR no longer supports its original objectives, and is open to abuse.

In addition, there will be changes to the SDLT reliefs for registered providers (RP) and first time buyers (FTBs). From 6 March 2024, RP relief will be adapted to remove uncertainty for the availability of the relief for RPs purchasing property using public subsidy. From 6 March 2024, individuals purchasing leasehold property through a nominee or bare trustee will also be entitled to claim FTB relief. Also, public bodies will be removed from the scope of the 15% rate of SDLT for acquisitions of high-value residential property acquired by non-natural persons.

This set of proposals does not impact land and buildings transaction tax or land transaction tax, which are devolved taxes paid on the acquisition of property in Scotland and Wales respectively. Both of these devolved taxes will, for now, retain their respective versions of MDR and FTB relief.

Our comment

The removal of the MDR has come as a surprise, although it was one of the potential outcomes from HMRC’s consultation.

In practice, for large acquisitions in the private-rented sector, whilst MDR would be a consideration, most transactions would qualify as non-residential on the basis that the transaction involved the acquisition of 6 or more dwellings. This is often as good or even more advantageous than a claim for MDR, particularly if the 3% higher rate of SDLT for additional dwellings is factored in. Scotland has the equivalent 3% higher rate for additional dwellings (HRAD), so the same applies.

MDR, however, is extensively used by investors in the student accommodation sector. These properties would not be treated as a dwelling for the purposes of the 3% HRAD and so the lower ‘normal’ residential rates of SDLT would apply, and may even limit the SDLT payable to 1% of the chargeable consideration. With the abolition of MDR, the non-residential rates of up to (currently) 5% will apply, instead.

The examples above are of MDR claims which are aligned to the original policy objective. MDR, however, has become increasingly used in the residential conveyancing market, usually for high-value property transactions involving a main dwelling and other ‘subsidiary’ dwellings on site (for example a granny annexe, cottages, or other out-buildings). HMRC’s consultation raised a concern that MDR was being mis-used and applied contentiously in these situations. It has resulted in a number of cases which stretch the definition of a ‘dwelling’ in order to facilitate a claim for MDR to reduce a purchaser’s SDLT liability. With the Government’s decision to abolish the relief altogether, the consultation’s objectives will certainly be achieved, but it will also impact UK taxpayers claiming MDR in line with its original policy objective.

It should be noted that the Government has decided not to change its approach to the treatment of SDLT for ‘mixed-use’ property which will attract the non-residential rates of SDLT. An apportionment rule will not be introduced.

The adaptation to the relief for RPs is welcomed. Whilst RP relief has existed for some time, the legislation did not always accommodate for modern commercial fact patterns and the updates remove uncertainty in the application of the relief for local authorities or where public subsidy is being recycled.

The amendment to FTBs relief is narrow but serves a useful, social purpose and is a welcomed addition to the legislation.

There were some significant changes in the Budget for environmental taxes and excise duties, with not one, but two new taxes.

New vaping products duty and tobacco duty increase from 1 October 2026

With the aim of creating a smokefree generation by increasing the cost of smoking and vaping, the Chancellor announced the introduction of a new vaping products duty with effect from 1 October 2026.

A consultation document was released, with responses due by 29 May 2024. For further information on the proposed new duty see our insight article here. According to the Budget predictions, the new duty will raise £945m for the Treasury between its launch in 2026 and 31 March 2029.

The new measure will obviously affect consumers through increased pricing, but importers and producers of vaping liquids will also be impacted. It is proposed to have three different rates of tax:

• £1 per 10 ml bottle for nicotine free liquids
• £2 per 10 ml bottle for liquids with a nicotine content per ml that is the same or less than an average cigarette
• £3 per 10 ml bottle for high strength liquids with a nicotine content per ml that is higher than an average cigarette

Tobacco duty will also be increased on 1 October 2026, so that there will continue to be a financial incentive to choose vaping over smoking.

Carbon border adjustment mechanism to be introduced from 1 January 2027

The carbon border adjustment mechanism (CBAM) is a way of imported goods being made subject to the same carbon price as domestically produced goods. It acts to ensure that domestically produced products are not disadvantaged by imports from territories that have lower carbon pricing.

The EU introduced a CBAM with effect from 1 October 2023. In December 2023 the Government published a response to a consultation indicating that a UK CBAM would be introduced by 2027.

In the Spring Budget the Chancellor confirmed that the UK CBAM will be introduced on 1 January 2027 for imports of aluminium, cement, ceramics, fertiliser, glass, hydrogen and iron and steel. There will be technical consultations in 2024 to set out the details of the scheme.

Domestic producers of goods within the scope of the scheme will also be impacted. The reform of the UK emissions trading scheme (UK ETS) will take place alongside the introduction of the CBAM, with free emissions allowances being phased out and the overall UK emissions cap being reduced.

Landfill tax increase of 22%

Landfill tax was also subject to a hidden increase buried deep within the Spring Budget document. From 1 April 2025 it is increasing by approximately 22%. The Chancellor says that the rates are being adjusted to reflect actual RPI and to continue to incentivise investment in more sustainable waste management infrastructure.

From 1 April 2025 the standard rate will be £126.15 per tonne and the lower rate will be £4.05 per tonne. The 2024/25 rates are £103.70 per tonne and £3.30 per tonne. This measure is forecast to raise an extra £50m per year in England and Northern Ireland alone.

As landfill tax is a devolved measure it remains to be seen whether or not the Scottish and Welsh Governments will follow suit. The rates have historically been identical in each country to prevent movements of waste across the border being driven by differences in rates.

This significant increase will affect landfill site operators who must administer the tax. It will also impact local authorities, businesses and private households indirectly as the price of waste disposal is strongly linked to the rate of landfill tax.

Air passenger duty increases for non-economy flights

Air passenger duty is likewise going to experience an upwards adjustment from 1 April 2025 to reflect recent high inflation, but for the standard and higher rates only. The rates for economy domestic and short-haul flights remain frozen.

Extension of energy profits levy (EPL) for 12 months and energy security investment mechanism (ESIM)

For oil and gas companies the EPL was extended by 12 months to 31 March 2029, because the price of energy has remained high for a sustained period. The Chancellor committed to inclusion of the ESIM in Spring Finance Bill 2024 such that that the EPL will no longer apply if energy prices fall below the specified level.

Fuel duty freeze and 5p reduction extended

It was no great surprise that the Chancellor announced that fuel duty remains frozen and the 5p reduction has been extended by another 12 months to 22 March 2025. In his speech the Chancellor said that freezing the fuel duty along with alcohol duty reduces headline inflation  by 0.2% in 2024/25. This inflation balancing measure will be popular with drivers, saving the average car driver £50 per year at a cost of £3.1 bn to the Exchequer in 2024/25. The difference between road fuel gas and diesel duty rates is also being maintained to 2032.

Plastic packaging tax – surprising by its absence

Plastic packaging tax is not mentioned in the Budget or the tax rate tables, other than to confirm the already announced rate increase to £217.85 per tonne from 1 April 2024. It is unusual that the rate for 2025/26 has not yet been announced.

A significant consultation exercise was also launched in July 2023 connected with the use of chemically recycled content in plastic. To date there has been no summary of responses to the consultation.

As there is an evaluation of plastic packaging tax currently being undertaken by HMRC and HM Treasury, the Chancellor could be awaiting the outcome before making any further changes.

Alcohol duty freeze and end of alcohol duty stamp scheme

The current freeze on alcohol duty rates will continue until at least 1 February 2025. On the regulatory front, the alcohol duty stamp scheme will be wound down.

The alcohol duty stamp scheme currently applies to 35cl+ bottles or other retail containers containing spirits and other alcoholic drinks with an alcohol by volume (ABV) strength of 30% or more.

The Government launched the alcohol duty stamp scheme in 2009 as part of its strategy to tackle alcohol fraud. The closure of the scheme is good news for UK businesses importing, producing, storing or supplying spirits and other alcoholic beverages with 30%+ ABV strength, as it removes the costs and administration associated with applying duty stamps on bottles and other retail containers in sizes of 35cl or more.