The Chancellor did not have much to say about VAT in the Budget. The VAT headline was about the extension of the temporary 5% rate applying to hospitality, holiday accommodation and admission to attractions.
Other measures include the option to pay VAT deferred from spring 2020 by instalments and the continuation of the current VAT registration threshold.
However, other announcements were made on Wednesday that relate to major changes to the VAT regime coming in next year.
Temporary reduced rate of VAT on hospitality, holiday accommodation and admissions to attractions
The temporary application of the 5% rate to these services was due end on 31 March. It will now be extended to 30 September, followed by a period from 1 October until 31 March 2022 during which a special rate of 12.5% will apply.
The rules on which services qualify for the reduced rate are quite complicated and if you think that the reduced rate applies to your services you should check the HMRC guidance for your sector.
Repaying deferred VAT
As a one-off COVID-19 measure, HMRC allowed businesses to defer the VAT payments due in the VAT period ended 30 June. The deferred VAT was due to be paid by 31 March 2021.
HMRC has introduced a new scheme so that businesses can pay off the deferred VAT over a number of instalments, the final instalment being due in February 2022.
If you wish to use the instalment scheme you must apply via your online Government Gateway account, see https://www.gov.uk/guidance/deferral-of-vat-payments-due-to-coronavirus-covid-19 for more on how to pay the deferred VAT.
VAT registration threshold
Although there has been a lot of discussion about the effect of the present relatively high registration threshold, it will remain at £85,000 for the two years from 1 April 2022. The deregistration threshold will remain at £83,000. The registration threshold has been £85,000 since 1 April 2017.
Extending Making Tax Digital (MTD) to all VAT registered businesses
Currently VAT registered businesses that are trading below the VAT registration threshold (voluntary registrations) do not have to keep digital accounting records or file their VAT returns using MTD, although many do. From April 2022 all VAT registered traders must keep digital accounting records and file their VAT returns using MTD.
New penalty and interest regime for late submissions and late payments
A new penalty regime will be introduced on 1 April 2022 that will be the same for VAT and Income Tax.
Penalties for late payment will be geared to the length of time that payments are late.
Penalties for late submission will be levied on a complicated points system, points being incurred for each late submission. This system will apply to returns that need to be made monthly, or quarterly or annually, such as VAT returns and the future quarterly returns that will be required for income tax under MTD, as well as the annual tax submission. Points incurred for late submission will expire after a set period. If accumulated points exceed a set limit a penalty will be due.
Interest will be charged on late paid tax regardless of whether a penalty has also been levied.