A roundup of VAT measures in Budget 2021.
In addition to the extension of the reduced VAT rate for hospitality, hotel and holiday accommodation, mentioned in our separate roundup of COVID-19 related measures, the Chancellor made a number of other announcements on VAT. These included freezing the VAT registration threshold and a new points-based penalty regime for late payment of VAT and late submission of VAT returns.
VAT registration threshold frozen at £85,000 until 31 March 2024
The freezing of the VAT threshold will bring more businesses into the VAT net through fiscal drag however it appears the Chancellor has decided against any wholesale reduction in the threshold. This may be a pointer towards HMRC’s plans for taxing the sharing economy.
Scope of Making Tax Digital (MTD) for VAT extended
It has been confirmed that MTD obligations will apply to all UK VAT registered taxpayers for accounting periods beginning on or after 1 April 2022. This may cause some difficulties for micro businesses.
New points-based penalty regime for late payment of VAT and late submission of VAT returns
Two papers have been issued by HMRC outlining a new points-based penalty regime for regular tax return submission obligations, which replaces the default surcharge regime for VAT. This measure will affect those who are required to submit a VAT return and fail to submit returns on time. Late payment penalties of 2 percent or 4 percent of the outstanding sum will also be due depending on how late the payment is, (unless time to pay (TTP) has been proposed to HMRC by day 15 after the due date and is then agreed) with a further 4 percent per annum becoming due once the debt is more than 30 days old. The impact of proposing TTP that is then agreed is that the tax is treated as though it was paid on the date of the TTP proposal, though interest will still be due.
The new regime is complicated but it will penalise the small minority who persistently do not comply by missing filing and payment deadlines, while being more lenient on those who make the occasional slip-up. It will mean a common approach across VAT and income tax self-assessment (ITSA) although the implementation date for ITSA accounting periods is later than that for VAT returns.
The VAT interest rules will also change and will be similar to those that currently exist for ITSA.
The penalty reform and changes to interest rules will come into effect for VAT taxpayers for accounting periods beginning on or after 1 April 2022.
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