Autumn Budget 2021 – VAT

There were no changes announced to the general 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.

In the Spring Budget 2021 that the temporary reduced rate was extended for a further six-month period at 5% until 30 September 2021 and then a new reduced rate of 12.5% was be introduced which will end on 31 March 2022.

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 Spring 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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