Budget 2021 - VAT matters

TEMPORARY 5% VAT RATE EXTENSION

The temporary 5% VAT rate that was introduced for hospitality, accommodation and attractions in July 2020 has been extended again. The extension this time is in two parts, with the 5% rate continuing to 30 September 2021 and then rising to a brand new VAT rate of 12.5% until 31 March 2022, before reverting to the standard 20% rate.

The new 12.5% rate in particular will require affected businesses to review pricing and till/bookkeeping systems when it is introduced.

Affected businesses using the flat rate scheme will need to keep track of changes to their rates as follows:

• Catering: 4.5% to September then 8.5% before reverting to 12.5% next April
• Hotels/accommodation: 0% to September then 5.5% for 6 months before reverting to 10.5%
• Pubs: 1% to September then 4% from October to March and then back to 6.5%

VAT REGISTRATION THRESHOLD

The compulsory VAT registration threshold has been set at £85,000 since April 2017. The Budget announcement confirmed that this will remain frozen at that level until March 2024 along with the deregistration threshold (£83,000).

MAKING TAX DIGITAL FOR VAT

This wasn't a Budget announcement but it has been confirmed that MTD for VAT will apply to all VAT registered businesses from April 2022. A technical change is being made to the way VAT submissions are accepted in April 2021 so some registered entities may need to change their submission method at that time.

DOMESTIC REVERSE CHARGE

See our earlier article regarding this change from 1 March 2021 - Construction Industry - New VAT Rules from 1 March 2021

COVID-19 VAT DEFERRAL

See our earlier article re arranging to pay deferred VAT from 2020 by instalments up to January 2022 - Paying VAT deferred from April to June 2020