WellTax Blog

Budget 2021: VAT

March 16, 2021

HMRC have announced the following measures affecting VAT:

Introduction of a new reduced rate of VAT for hospitality, holiday accommodation and attractions

Introducing an extension to the temporary reduced rate of VAT for a further six months period until the 30th of September 2021. A new reduced rate will then be introduced until the 31st of March 2022.

In order to continue supporting the 150,000 businesses in the tourism and hospitality sectors and to protect 2.4 million jobs, the government has extended the temporary 5% reduced rate of VAT until 30 September 2021. To help businesses manage the transition back to the standard rate (20%), a 12.5% rate will then apply for a further six months, until the 31st of March 2022.

Legislating for the VAT deferral new payment scheme and deterrent                                                   

Providing additional support to businesses during the Covid-19 pandemic, giving them greater flexibility and a choice of more and smaller instalments at a time of reduced cashflow for many sectors.

This measure has two impacts:

Firstly, the commitment given by the Chancellor of the Exchequer on the 24th of September 2020 as part of the Winter Economy Plan becomes law. This commitment stated that businesses which deferred VAT payments until the 31st of March 2021 would be given longer to pay, in up to eleven interest-free instalments.

The New Payment Scheme has a straightforward online portal which enables businesses to pay their deferred VAT by direct debit, with the first instalment payment made in the same month as when the business opted into the scheme.

Businesses can opt into the New Payment Scheme in either March, April, May or June but the later they opt in, the fewer instalments they are allowed to make. Furthermore, the opt-in date must be sufficiently early in the month in order for the first payment to reach HMRC by the end of the same month.

Businesses can pay in fewer instalments and alternatively, they can still pay the full deferred amount by the 31st of March 2021 or contact HMRC to arrange an alternative agreement

The second impact of this measure is the introduction of a penalty of 5%, chargeable if businesses have not paid in full the deferred VAT, opted into the New Payment Scheme nor made an alternative arrangement by the 30th of June 2021. The normal Default Surcharge approach will not apply to deferred VAT.

Maintain VAT thresholds for two years                                                                                

This measure maintains the current VAT registration and deregistration thresholds for a further two years.

In order to provide businesses with continuing certainty, the registration and deregistration thresholds are being maintained at current levels for a further two years the taxable turnover thresholds, which determine whether a person or company must be registered for VAT or apply for deregistration, will respectively remain at £85,000 and £83,000 until the 31st of 2024.

Extension of Making Tax Digital for VAT                                                                                                                             

These measures extend Making Tax Digital requirements to smaller VAT businesses from April 2022.

The UK Government has extended its Making Tax Digital (MTD) programme to the UK’s smallest companies from April 2022.  The announcement confirms that all VAT registered businesses will have to comply with MTD from the 1st of April 2022.

According to the current rules the vast majority of VAT registered businesses with a taxable turnover above the VAT threshold (£85,000) are obliged to keep digital VAT records and send returns using MTD compatible software.

However, from the 1st of April 2022, all VAT-registered businesses, including those with a taxable turnover below £85,000, will be required to comply with the MTD rules starting from April 2022.


For further information on the new UK Budget 2021, contact us at info@well-tax.com or follow us on our website www.well-tax.com.



Sergio Schittone


Photo by: Nick Kane on Unsplash

Related articles

01 December, 2023

UK Autumn Statements 2023: what does it mean for individuals?

08 December, 2022

Truss vs Sunak: an overview of the proposed fiscal policies of the two candidates

Search something