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Budget 2021: COVID-19 VAT measures

Rob Janering, Director, VAT and Customs Duty services
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VAT rate changes

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:

  • food and non-alcoholic drinks served in restaurants, cafes, pubs and similar venues
  • takeaway orders of hot food and hot, non-alcoholic drinks
  • supplies of hotel and holiday accommodation (including B&Bs and campsites, for example)
  • entry to attractions such as theme parks, zoos and cinemas.

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:

  • ensuring systems are set up to capture the correct VAT rate of supplies
  • considering how it impacts prices and margins, especially if pricing is inclusive of VAT
  • reviewing any pending orders or deposits received in order to be prepared with managing supplies which have a timeline covering both before and after the change
  • discussing with suppliers whether invoicing can be delayed to after the rate change is in force, if you are an organisation which cannot recover all of its VAT.

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.

VAT return payment deferral

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.

Organisations need to ensure they have decided how to manage VAT that was deferred. An application has to be made to access the New Payment Scheme – it is not an automatic enrolment system. As such, doing nothing is not an option and will probably result in a 5% penalty.

If you would like to discuss this issue further, please contact Rob WarneRobert Marchant or your usual Crowe contact.

Budget 2021

What do the announcements mean for you and your organisation?


The important dates and details if you deferred VAT due to COVID-19.

Contact us

Robert Marchant
Robert Marchant
Partner, VAT and Customs Duty services