The biggest headline from today’s 2021 Budget statement is that the 5% rate of VAT for supplies in the hospitality and tourism sector will continue to apply until 30 September 2021. What’s more, the rate will then rise to just 12.5% and stay there until 31 March 2022. Only at this point will the 20% standard rate be re-installed.
The continuation of the 5% rate of VAT means it will have been in effect for almost 15 months – it was first applied with effect from 15 July 2020 with an intention to run until 12 January 2021, and that deadline was extended to 31 March 2021 in September last year.
So, while it does not come as a surprise to see another extension, the application of an interim 12.5% rate wasn’t envisaged. On the assumption that the Prime Minister’s roadmap out of lockdown can run as proposed, this measure will be beneficial for those industries as they enjoy the lower rates over the summer, autumn and winter while recovering and rebuilding from the hit COVID-19 has given them.
As a reminder these reduced rates apply to the following:
As when the 5% rate was first introduced, organisations will need to consider how best to manage the change to 12.5%. This should include:
Those organisations already applying an exemption to their income in these categories will not be able to swap that treatment for the 5% or 12.5% rate instead.
Many organisations took advantage of the payment deferral scheme, which allowed them to defer VAT payments due between 20 March 2020 – 30 June 2020. These amounts were originally meant to be repaid by 31 March 2021. However, just before the Budget it was confirmed that organisations could stagger these payments through to January 2022.
The scheme to defer payment of the VAT due was call the New Payment Scheme. You can find full details in our recent update When to pay VAT which was deferred due to COVID-19.
It was announced today that a penalty, totalling 5% of any outstanding VAT due after 31 March 2021, will be implemented if that organisation had not opted into the New Payment Scheme or made an alternative arrangement to pay by 30 June 2021. This penalty will apply instead of the normal default surcharge regime.
If you would like to discuss this issue further, please contact Rob Warne, Robert Marchant or your usual Crowe contact.
When to pay VAT which was deferred due to COVID-19