Budget 2021: VAT

VAT key measures included in Budget 2021 are as follows.

Registration threshold

• The VAT registration threshold (£85,000) and Deregistration threshold (£83,000) are frozen until 31 March 2024.

Reduced rate of VAT: hospitality, accommodation and attractions

• The temporary reduced rate of VAT (5%) applying to goods and services supplied by the tourism and hospitality sector is extended to 30 September 2021. 
• A 12.5% rate of VAT will apply between 1 October 2021 and 31 March 2022, before reverting to the standard (20%) rate. 

Deferred VAT payment scheme 

• Businesses that Deferred their VAT liabilities between 20 March and 30 June 2020 can now opt in to use the VAT Deferral New Payment Scheme.
• The service opened on 23 February 2021 and will close on 21 June 2021.

Powers to tackle Electronic Sales Suppression (ESS) 

• Measures will be introduced to make the possession, manufacture, distribution and promotion of ESS software and hardware an offence.
• HMRC will be able to tackle tax evasion undertaken by businesses that use software and hardware to hide or reduce the value of transactions.
• New information powers will allow HMRC to identify developers and suppliers in the ESS supply chain and access software developers’ source code.

Previously announced measures

Reversal of the removal of Second Hand Margin Scheme for cars 

• The previously announced removal of the Second Hand Margin Scheme for cars sourced from Great Britain and sold in Northern Ireland has been reversed. 

Repeal the VAT Treatment of Transactions Order 1992

• To ensure government departments and NHS bodies do not obtain a VAT recovery advantage over other taxpayers, the VAT (Treatment of Transactions) Order 1992 will be repealed before autumn 2021

Making Tax Digital

•  Making Tax Digital for VAT will apply to all VAT registered businesses from 1 April 2022. 

Useful guides on this topic

Budget 2021: Subscriber guide
A detailed guide with links to more detail on all the key topics for SMEs and their owners.

COVID-19: VAT deferred payments
COVID-19 VAT payment deferral measures for VAT registered businesses.

Making VAT Digital
Making Tax Digital for VAT, or Making VAT Digital (MVD). This section sets out who needs to follow the MVD rules, what software to use, what records to keep, and what agents need to do.

Margin Scheme
Rather than calculating output VAT on the sales price in the usual way, businesses calculate their VAT liability on the profit margin they make on the goods they sell.

Registering for VAT
A guide to explain when to register for and charge VAT? VAT registration limits and VAT rules after Brexit. What penalties might HMRC issue for late notification of registration?