Value Added Tax
The VAT registration and deregistration thresholds will remain frozen at their present levels of £85,000 and £83,000 until 31 March 2024. This will tend to require more businesses to register for the tax as they grow, and therefore represents a small tax-raising measure.
To help support businesses heavily impacted by the pandemic, the rate of VAT on most supplies by hospitality, leisure and entertainment businesses was cut from 20% to 5% in July 2020. This was initially intended to expire in January 2021, but that was extended to 31 March, and it has now been further extended to 30 September 2021. An intermediate rate of 12.5% will apply for qualifying supplies from 1 October 2021 to 31 March 2022, after which the standard 20% rate will apply again.
HMRC says that there are no plans to introduce ‘anti-forestalling rules’ to counter the VAT saving enjoyed by someone who pays a deposit before the rate goes back up on present plans, that will lock in the lower rate of VAT to the extent that the supply is paid for before 30 September, even if the actual supply takes place later.
Payment of deferred VAT
Businesses could defer the payment of VAT that fell due between March and June 2020. Initially the deferred amount was to be paid in full by 31 March 2021, but businesses can now apply to pay it by interest-free instalments up to 31 March 2022. Applications must be made online by 21 June 2021, but if the scheme is applied for earlier, the payments can be spread over a longer period.
HMRC has announced that the long-awaited reform of the system of penalties for late payment of tax will be implemented over the next three years, starting with the replacement of default surcharge for accounting periods starting from 1 April 2022. Many of those who have fallen foul of default surcharge regard it as unfair and arbitrary, so it is to be hoped that what replaces it will be a better system. In the meantime, any warnings that default surcharge might be levied should still be taken very seriously.
Making Tax Digital
The Budget also confirms the intention to bring all VAT-registered businesses, including those currently trading below the registration threshold, within the Making Tax Digital reporting system with effect from 1 April 2022.