Budget 2021: VAT

3 March 2021 / Insight posted in Articles

As is often the case, the Budget contained various VAT-related measures that will be important to certain businesses and other organisations.


VAT reduction for the UK’s tourism and hospitality sector

The temporary 5% VAT rate that applies to certain goods and services supplied within the tourism and hospitality sector, which was due to end on 31 March 2021, will continue until 30 September 2021. The rate for these supplies will only revert to the standard 20% rate on 1 April 2022, and in the meantime a 12.5% rate will apply.

Moore Kingston Smith comment

This measure is forecast to cost £4.7 billion, but given that the tourism and hospitality sector has effectively been shut down in recent months, it may prove to be money well spent if the measure successfully protects this valuable sector.


Paying VAT deferred in 2020 and associated penalties

As announced previously, any business that deferred VAT payments due between 20 March and 30 June 2020 can use a further deferral scheme to pay that VAT in up to eleven equal payments from March 2021, rather than in one payment due by 31 March 2021 as would otherwise be the case. A penalty of 5% will be chargeable on the deferred VAT that is outstanding after 31 March 2021 if the business has not opted into the new deferral scheme or made an alternative arrangement to pay by 30 June 2021.

Moore Kingston Smith comment

We knew about the extended deferment period but the penalty of 5% is a new announcement. In practice, this penalty should be avoidable as, if a business cannot repay the deferred VAT at this stage, it should be able to ensure it makes alternative arrangements by 30 June 2021.


Maintain the VAT registration threshold for two years

As part of the general freezing of rates and allowances, the VAT registration threshold (£85,000) and deregistration threshold (£83,000) will remain at their current levels for a further period of two years from 1 April 2022.

Moore Kingston Smith comment

The freezing of the VAT registration and deregistration thresholds is forecast to collect an additional £480 million between 2022/23 and 2025/26. While this measure has the benefit of giving businesses certainty, it will ultimately result in more businesses needing to register for VAT and so increase the tax take.