Budget day March 2021 – The VAT Perspective
08.03.2021
“It’s the economy, stupid” read a large sign in the Presidential campaign office for Bill Clinton in 1992. Whilst I can only guess at any current slogan being employed by Rishi Sunak in his job as Chancellor clearly there is a discipline required to stay “on message” as we strive across the UK to move forward out of the pandemic and “Build Back Better”.
From the VAT perspective there was little of surprise in this Budget, indeed the trailing of much of the content of Budget’s seems to be the order of the day. It may be that what is now being referred to as “Tax Day” on the 23rd March will bring more to discuss as we look for progress made on past consultation processes – not least from the Office of Tax Simplification, as well as publication of future tax strategies to chew over.
The Hospitality and Tourism sector will no doubt have welcomed the continuing application of the 5% VAT rate on their (non-alcoholic) sales until the 30th September 2021. When the sector was last open many operators maintained pre pandemic pricing levels which added further financial support whilst only having to account for the 5% VAT amount. Further good news came from the announcement that from the 1st October 2021 the VAT rate would not return back to the 20% Standard rate but would benefit from a step rise to 12.5% until the 31st March 2022.
Longer term intentions from government to create this Tourism reduced rate are not part of the tax conversation now but whether this remains a possibility – as many in the sector has long argued for – remains to be seen.
Indirect tax regimes remain the preferred route across the globe for tax revenue generation and following the UK’s departure from the EU whilst this provides greater flexibility on the use of VAT rates and where they are set, we would be unlikely to see a move away from taxes that target consumption as the point of generation. All the more so as they appear to influence behaviour – a benefit in promoting a Greener economy.
Outside of this VAT rate news the theme remained on message with a focus on increased digital accounting being extended to all VAT registered businesses not just those VAT registered with a turnover the registration threshold of £85,000. The roll out of Making VAT Digital (MVD) has been heralded as a success by HMRC – 1st April 2021 brings the fully integrated digital requirement for those already within the MVD system and this new stage – applying from the 1st April 2022 will bring a further 1.1m VAT registered businesses into the regime.
The usual question we get asked at this time is did the VAT registration threshold change? For another two years the answer will be NO – it is to stay at £85,000 until the 31st March 2024 and the Deregistration threshold (£83,000) will be the same. At least that addresses one of the points from the consultation around registration thresholds that has been hanging around for a while. The UK’s threshold remains high in comparison to the rest of the EU and it’s a point often forgotten by UK businesses as they can assume threshold levels will be comparable in European states where they find themselves trading – an assumption that can prove costly if turnover is not monitored.
Another consistent theme is the regime harmonisation around penalties charged for late payment and late submission of VAT returns and payments as well as Income Tax Self-Assessment (ITSA) returns.
A penalty points-based regime will come into place for late returns and payments for VAT accounting periods being on or after the 1st April 2022 with taxpayers in ITSA with business or property income over £10,000 per year, from accounting periods beginning on or after 6 April 2023; and for all other taxpayers in ITSA, from accounting periods beginning on or after 6 April 2024. Undermining the adage “points make prizes” at least from the context of the taxpayer.
A financial penalty will only be issued when the relevant penalty threshold is reached. The stated objective being to introduce penalties proportionate to the amount of tax owed and how late the tax due is. The government will also introduce a new approach to interest charges and repayment interest to align VAT with other tax regimes.
Those with a deliberate plan to exploit electronic accounting systems to suppress VAT declarations should also note that HMRC will have powers to tackle Electronic Sales Suppression (ESS). This is where the possession, manufacture, distribution and promotion of ESS software and hardware will be an offence.
The difference between Tax Avoidance and Tax Evasion was once described to me as “the thickness of a prison wall” and these new ESS-specific information powers will allow HMRC investigators to identify developers and suppliers in the ESS supply chain and access software developers’ source code. In such instances it will not be VAT advice required I would suggest but legal counsel.
However, to end on a positive, the Budget also announced that the window for starting deferred payments through the VAT New Payment Scheme has been extended by up to three months. This means that any business that took advantage of the original VAT deferral on VAT returns from 20 March through to the end of June 2020 can now opt to use the VAT Deferral New Payment Scheme to pay that deferred VAT in up to eleven equal payments from March 2021, rather than one larger payment due by 31 March 2021, as originally announced.
If the Chancellors focus remains as the economy, there was little from the VAT perspective that would cause upset to those plans. Could he have done things differently? – slashed the VAT rates to grow up spending?
Perhaps all the comments on the as yet unlocked spending powers from us as inadvertent savers from the restrictions we are currently under, gave him some comfort that in leaving VAT rates unaffected the uptick in tax revenues will arise from increased consumptions as lockdown eases?
On balance with the need to focus on protecting lives as well as the long-term stability of the economy this years Budget was only ever going to be a step on the much longer road to recovery in every sense across the whole of the UK. It’s not just about “the economy, stupid” this year at least.
VAT Notices for Reference:
The VAT registration and deregistration thresholds https://www.gov.uk/government/publications/maintain-vat-thresholds-for-2-years-from-1-april-2022
New penalties for late payment and for late submission of returns. Interest harmonisation and reform of penalties for late submission and late payment of tax
Extending MVD: https://www.gov.uk/government/publications/extension-of-making-tax-digital-for-vat
VAT reduced rate for hospitality and holiday accommodation https://www.gov.uk/government/publications/introduction-of-a-new-reduced-rate-of-vat-for-hospitality-holiday-accommodation-and-attractions
Deferred Payments Extension https://www.gov.uk/government/publications/legislating-for-the-vat-deferral-new-payment-scheme-and-deterrent/legislating-for-the-vat-deferral-new-payment-scheme-and-deterrent