Budget 2021 – VAT

There were no changes announced to the rate of VAT.

The VAT registration and de-registration limits will remain frozen at £85,000 and £83,000 respectively and will now be frozen until at least 31 March 2024.

VAT on the hospitality industry

The VAT rate for hospitality, hotel and holiday accommodation and admission to certain attractions was previously reduced to 5% up until 31 March 2021 due to Covid.

The government announced at Budget 2021 that the temporary reduced rate will be extended for a further six-month period at 5% until 30 September 2021.

A new reduced rate of 12.5% will then be introduced which will end on 31 March 2022.

VAT deferral

Businesses were permitted to defer payment of VAT payments that would have been due between 20 March 2020 and 30 June 2020.  This VAT was due for payment by 31 March 2021.

In September 2020, the Chancellor announced the the deferred VAT could be paid in up to 11 smaller interest free instalments.

Businesses can now opt in to the instalment scheme here.

NOTE: It was also announced in the Budget paperwork that there will be a penalty of 5% of the VAT outstanding if you have not paid in full, opted into the payment scheme or made an alternative arrangement to pay by 30 June 2021.

VAT on e-publications

A reminder that, from 1 December 2020, e-publications (e-books, newspapers, magazines etc) are now entitled to the same, zero rated, VAT treatment as their physical counterparts.

VAT fraud in labour provision in the construction sector

The VAT domestic reverse charge for building and construction services came into force on 1 March 2021.

The measure, for certain supplies of construction services and related goods, means that the customer will be liable to account to HMRC for the VAT in respect of those purchases rather than the supplier.

Making Tax Digital for VAT

From April 2019, all VAT registered businesses with a turnover in excess of the VAT threshold (£85,000) have been required to file their VAT returns through compliant software under making tax digital.  From April 2021, the soft-landing rules cease, which means that all transfers of data must be by digital links (for example, you cannot take the information from a spreadsheet and type it into a website to file your VAT – you must be able to upload the information from the spreadsheet to the website digitally).

It was confirmed in the Budget that MTD for VAT will be extended to all VAT registered businesses from April 2022.

Penalties for late submission and late payment of tax

A new points based penalty regime will be introduced for VAT and Income Tax Self Assessment (ITSA) to replace existing penalties for regular tax return submission obligations.

Late submission penalties

When a taxpayer misses a submission deadline they will incur a point. Points accrue separately for VAT and for ITSA.

A taxpayer becomes liable to a fixed financial penalty of £200 only after they have reached the points threshold.

The level of points threshold depends on the taxpayer’s submission frequency: Annually = 2 points / Quarterly = 4 Points / Monthly = 5 Points.

Late payment penalties

There is no penalty at all if the taxpayer pays the tax late but within 15 days of the due date.

The first penalty is set at 2% of the outstanding amount if they pay between 16 days and 30 days after the due date.

It is set at 4% of the outstanding amount if there is tax left unpaid 30 days after the due date.

A second late payment penalty is charged at a rate of 4% per annum, calculated on a daily basis on the total unpaid tax incurred from day 31.

To avoid a penalty or penalties, the taxpayer will need to either pay or approach HMRC to agree a Time to Pay Arrangement (TTP).  The penalty will stop accruing from the date the TTP is agreed.

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