Constable VAT Budget Focus March 2021

Welcome to this special Budget 2021 edition of Constable’s VAT Focus. In this edition of our regular newsletter, we focus on the VAT related announcements from today’s Budget.

Rishi Sunak has delivered the first budget since the end of the Brexit transition period. Prior to the budget, there was a significant amount of discussion around whether UK VAT rates would change to help assist the recovery of the UK economy following the coronavirus pandemic.

It was suggested that a decrease in the VAT rate could encourage consumer spending in an effort to help businesses which are struggling as a result of coronavirus and to generate additional tax income for HMRC.

However, no cut in the rate of VAT was announced. There are some VAT issues arising either from today’s Budget or that have already been announced and are to be legislated for in the Finance Bill 2021.

Reduced rate for Hospitality and Tourism

In July 2020, the Government announced a temporary VAT cut for certain supplies of hospitality, hotel and holiday accommodation, and admissions to certain attractions to apply from 15 July 2020 until 12 January 2021. This measure aimed to support businesses and jobs in the hospitality and tourism sector. In recognition of the extra assistance which establishments such as restaurants, pubs, bars and cafés needed to deal with the effects of the ongoing Covid-19 restrictions, this reduction was extended until 31 March 2021.

The Chancellor announced today that the reduced rate “for hard hit sectors” will be extended again until 30th September 2021. From this date, a new reduced rate of 12.5% VAT will apply until returning to the standard rate of 20% on 31st March 2022. HMRC has released Revenue & Customs Brief 2 (2021) which offers some clarity around the application of the temporary reduced rate.

VAT Registration

It was mooted that the Government could announce a reduction in the VAT registration threshold in order to increase the number of VAT registrations and correspondingly increase VAT revenue generated.

However, it was announced today that the VAT registration and deregistration thresholds will not change for a further period of two years from 1 April 2022. There will be no revisions to existing legislation and legislation will continue as follows:

  • the taxable turnover threshold which determines whether a person must be registered for VAT will remain at £85,000
  • the taxable turnover threshold which determines whether a person may apply for deregistration will remain at £83,000

The further 2 year period ends on 31 March 2024.

Extension of Making Tax Digital for VAT

As announced by Written Ministerial Statement on 20 July 2020, Finance Bill 2021 includes provisions that will enable the scope of Making Tax Digital for VAT to be extended to all VAT registered businesses with effect from 1 April 2022.

VAT Deferral New Payment Scheme

The VAT deferral new payment scheme was announced on 24 September 2020 and gives businesses the opportunity to make monthly payments of deferred VAT from March 2021.

This measure will be legislated for in Finance Bill 2021 for payment of the deferred VAT by instalments and for a penalty where the deferred VAT is not paid or there is no arrangement to pay.

The effect of this measure is that businesses that deferred VAT payments due between 20 March and 30 June 2020 now have the option to pay them in up to 11 interest-free instalments between 2021 to 2022.

Businesses that do not choose this option must pay any deferred VAT by 31 March 2021. Businesses may opt-in between February and June 2021 but with fewer instalments where take-up is in April (up to 10 instalments), May (up to nine instalments) and June (up to eight instalments), to ensure that full payment is received by the end of the financial year.

It is important that any businesses intending to take up this option act promptly. More information on how to opt to pay in instalments can be found here.

If any of these issues affect you and you would like further advice please contact us.

Please note that this blog post is intended to provide a general overview of the subject. No liability is accepted for the opinions it contains or for any errors or omissions. Constable VAT cannot accept responsibility for loss incurred by any person, company or entity as a result of acting, or failing to act, on any material in this blog post. Specialist VAT advice should always be sought in relation to your particular circumstance.