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ICAEW's Tax Faculty's provides a summary of the announcements on VAT in the Spring Budget 2021.

VAT rates and thresholds 

The annual taxable turnover threshold, which determines whether a person must be registered for VAT, will remain at £85,000 until 31 March 2024. The taxable turnover threshold which determines whether a person may apply for deregistration will remain at £83,000. The registration and deregistration limits for relevant acquisitions from European Union Member States will also remain at £85,000, but only applies to businesses registered for VAT in Northern Ireland from 1 January 2021. 

A person will have to apply for registration if, at the end of any month, the value of the taxable supplies made in the past 12 months or less has exceeded £85,000, or at any time there are reasonable grounds for believing that the value of the taxable supplies to be made in the next 30 days alone will exceed £85,000.

If at the end of any month, a person's taxable turnover in the past 12 months or less exceeds £85,000 but HMRC is satisfied that it will not exceed £83,000 in the next 12 months, that person will not have to be registered.

The standard rate of VAT remains at 20% and the reduced rate remains at 5%.

VAT reduced rate for tourism and hospitality

The 5% reduced rate of VAT for hospitality, holiday accommodation and attractions is extended for a further six months until 30 September 2021. This will be increased to a temporary interim rate of 12.5% from 1 October 2021 to 31 March 2022, before returning to the standard rate of 20% from 1 April 2022.

The last time that the UK had a VAT rate of 12.5% was the old higher rate that was abolished on 18 June 1979. There are unlikely to be many computer systems that still have this rate included in their VAT tables, so there could be significant systems implications to ensure the correct accounting for this short-term interim rate later this year. 

VAT deferral new payment scheme

The VAT deferral new payment scheme, announced on 24 September 2020,  gives businesses the opportunity to make monthly payments of deferred VAT. Businesses that deferred VAT payments due between 20 March and 30 June 2020 must pay this deferred VAT by 31 March 2021 or opt into the VAT deferral new payment scheme to pay in up to 11 interest-free instalments between 2021 to 2022. 

Businesses may opt -in between February and 21 June 2021. To pay in 11 instalments, businesses need to join by 19 March. Fewer instalments will be available where take-up is by 21 April (up to 10 instalments), 19 May (up to nine instalments) and 21 June (up to eight instalments), to ensure that full payment is received by the end of the financial year. Businesses can opt to pay in fewer instalments but there must be a minimum of two instalments.

There will be a penalty of 5%, chargeable in relation to the amount of the deferred VAT that is outstanding, if businesses have not paid in full, opted into the new payment scheme or made an alternative arrangement to pay by 30 June 2021. The normal VAT default surcharge will not apply to this deferred VAT.

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ICAEW Know-How from the Tax Faculty

This guidance is created by the Tax Faculty, recognised internationally as a leading authority and source of expertise on taxation. The Faculty is the voice of tax for ICAEW, responsible for all submissions to the tax authorities. Join the Faculty for expert guidance and support enabling you to provide the best advice on tax to your clients or business.

More on Budget 2021

Read the rest of the Tax Faculty's summary of the tax related announcements in the Budget on 3 March 2021.

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