The Chancellor announced the following measures on VAT in his Spring 2023 Budget.

These include:

  • Changes to VAT accounting rules for Drink Deposit Return Schemes.
  • Proposals to digitise the DIY Housebuilders Scheme and extend the time limit to six months from completion of the build.
  • Technical changes to late payment interest, penalties and repayment interest affecting commencement dates under the new VAT interest and penalty rules in certain circumstances.
  • Extension of the VAT exemption for healthcare to include services carried out by staff directly supervised by registered pharmacists in the UK from May 2023.
  • Extension of the zero rates of VAT for medicines dispensed on prescription supplied through Patient Group Directions from autumn 2023.

VAT and Drink Deposit Return Schemes

From 1 August 2023, it is proposed that:

  • New rules are introduced for businesses making Drink Deposit Returns (DDR) Schemes supplies to make provision for the deposit amount to be disregarded when accounting for supplies of DRS products and for manufacturers and importers to account for VAT only in respect of the in-scope goods sold by them where deposits are not refunded.

DIY Housebuilder Scheme

From a date yet to be determined the government intends to:

  • Digitise the VAT DIY housebuilders’ scheme
  • Extend the time limit for making claims under the scheme from three to six months from the completion of the relevant building works.

Technical changes to late payment interest, penalties and repayment interest

The proposed new measures will make the following minor, technical changes to the new harmonised interest rules and late payment penalties for VAT, which took effect from 1 January 2023.

From 15 March 2023 for late payment interest, 1 January for late payment penalties and Royal Assent of Spring Finance Bill 2023 for repayment interest:

  • When HMRC makes an assessment to recover monies where they have made a payment or repayment to a taxpayer which is too high, late payment interest will be charged from the date HMRC made the original payment, whereas currently interest is charged 30 days after the date of the assessment.
  • For businesses using the VAT Annual Accounting Scheme, late payment interest and late payment penalties will not be charged on instalments that are paid late, however late payment interest and penalties will still apply to any balancing payments that are not paid on time.

VAT Energy Saving Materials relief

HMRC are also consulting on proposed changes to expand the VAT energy-saving materials relief to improve energy efficiency and reduce carbon emission. See VAT energy saving materials relief: consultation

Extending the zero rate of VAT for medicines dispensed on prescription

From Autumn 2023

  • Spring Budget 2023 announcement: the government will extend the zero rate of VAT on prescriptions for medicines supplied through Patient Group Directions.

VAT: fund management review

  • Spring Budget 2023 update: following the consultation on proposed reform of the VAT rules on fund management to improve legal clarity and certainty, which closed in February, the government is considering the responses and continuing to discuss the proposals with interested stakeholders and will publish its response to the consultation in the coming months.

Review of VAT treatment of financial services

  • Spring Budget 2023 update: building on the recommendations of the industry working group established to consider the future of VAT and financial services, the government will continue working with industry stakeholders to consider possible reforms to simplify the VAT treatment of financial services, reducing inconsistencies and providing businesses with greater clarity and certainty.

Useful guides on this topic

Budget 2023: At a glance
Freeview summary of the measures announced in the Budget 2023

External link

Policy Paper: VAT Provisions for Drink Deposit Return Schemes 

Policy Paper: Technical changes to late payment interest, late payment penalties and repayment interest rules for VAT 

Consultation: VAT energy saving materials relief – improving energy efficiency and reducing carbon emissions


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