Extended VAT discount for hospitality

The current 5% VAT rate for the hospitality sector, holiday providers and attractions will be extended by six months to 30 September 2021. This was due to expire on 31 March 2021.

Perhaps more surprising was the introduction of a new 12.5% rate to cover supplies with a tax point between 1 October 2021 and 31 March 2022.

This intermediate rate is to ease these businesses back to the application of the standard rate of VAT on their supplies.

Unpaid VAT sanctions

New sanctions were announced for late payment of VAT and failure to submit returns.

The new rules will replace the current default surcharge regime. Where VAT has been paid late for VAT return periods beginning on or after 1 April 2022, the following penalty regime will apply:

• No penalty for payments made within 15 days of the due date
• 2% of the tax outstanding for payments made after day 15 but within 30 days
• 4% of the tax outstanding for payments made after day 30.

An additional penalty will be applied on a daily basis at an annual rate of 4% from day 31 on the tax that remains outstanding.

A time-to-pay arrangement will stop the penalties as the tax is treated (for penalty purposes) as being paid on the day the arrangement is proposed to HMRC, although interest will still be charged.

Points-based VAT sanctions regime

New rules will be introduced where a taxpayer fails to submit VAT returns. These will again apply to VAT return periods beginning on or after 1 April 2022.

Taxpayers will accumulate points in respect of the number of failures to submit returns or tax information.

A penalty of £200 will be applied when specific thresholds are exceeded and for every failure to submit thereafter. The thresholds will be:

• Two points for annual VAT returns
• Four points for quarterly VAT returns
• Five points for monthly VAT returns.

There will be adjustments to the points system for circumstances where a business changes the frequency of its VAT return submissions.

With each failure, the taxpayer will incur one point. These individual points will expire after 24 months unless the thresholds have been breached.

If the threshold has been breached, the taxpayer will have to meet specific compliance conditions before their points will be reset.

Deferred VAT payments

When COVID-19 first hit, the Government allowed businesses to defer payment of VAT returns due between 20 March 2020 and 30 June 2020. Originally, this VAT was due to be paid back by 31 March 2021.

Businesses will be able to spread the payment of this VAT over a maximum of 11 monthly payments. However, the business itself must apply to spread the cost and it cannot be done by an accountant or adviser.

Taxpayers can sign up through their online account and they have until 21 June 2021 to do so, though the later they wait, the fewer payments they can make.

The new legislation will also introduce a new penalty of 5% if payment is not made by 30 June 2021 and the taxpayer has not opted into the scheme to spread payment by that time, or otherwise entered into an agreement with HMRC.

Making Tax Digital (MTD)

MTD will soon apply to all VAT-registered businesses. From 1 April 2022, businesses which are VAT-registered but below the VAT-registration threshold will have to keep their VAT records digitally and submit their VAT return via MTD-compatible software.

VAT thresholds

The VAT-registration threshold will be maintained at £85,000 for a further two years from 1 April 2022. On this basis, the VAT-registration and deregistration threshold will remain unchanged until at least 31 March 2024.

*Last 12 months of the next 30 days
**Next 12 months