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Budget 2021: VAT administration updates

Rob Janering, Director, VAT and Customs Duty services
03/03/2021
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Two important announcements were made during the Budget regarding how the UK VAT system is managed. These related to the registration threshold and Making Tax Digital (MTD) for VAT.

VAT registration threshold

In previous years it has been normal to see the VAT registration threshold tick up by around £2,000 at each Budget. This is an important threshold because it determines the level of taxable turnover at which an organisation must register for VAT. The Chancellor has now confirmed that the current level of £85,000 will be maintained and not change again before 31 March 2024.

This should help to provide organisations some certainty for an extended period. However, it does follow a recommendation from the Office of Tax Simplification (OTS) in 2017 to review the threshold, and potentially lower it. This is due to a suggestion the £85,000 acts a ’cliff face’, which deters some organisations from growing further out of fear from the potential VAT regime impact.

The UK threshold is significantly higher than many across the world. However, that high level is seen as a simplification for many small businesses in that they do not have to manage VAT while growing. This is why, to date, it has not been reduced, albeit this freezing of the threshold does achieve that effect but to a lesser extent.

If you feel that your business may exceed this threshold before 31 March 2021 please contact Crowe (details at the bottom of this page). We have a dedicated compliance team who can help you manage VAT registrations in a straight forward and cost-effective way.

Making Tax Digital (MTD) for VAT

MTD is a key part of HMRC’s strategy to make the tax system more resilient and effective. VAT has been at the forefront of implementing these new obligations with a need to submit VAT returns via an API link in place since April 2019 and to maintain digital links between accounting software for VAT return periods after 31 March 2021.

At the moment these obligations only apply to VAT registered organisations with a turnover above the registration threshold (£85,000, see above). From 1 April 2022 all VAT registered organisations will be obligated to meet the MTD requirements, regardless of their turnover level.

Many organisations will have got used to submitting their VAT returns via the API link, something that has been required for almost two years. However, ensuring that there are digital links in place and that compatible software is being used requires a deeper dive into the VAT return preparation and submission process.

It might be that upgraded software or changes to existing processes are required. Regardless, if a structured approach is taken to reviewing the existing situation then it is possible to find solutions that often lead to efficiencies over existing processes.

We are helping many clients ensure they are compliant with the MTD for VAT requirements and reviewing their VAT compliance processes. If you would like to discuss either of these issues further then please contact Rob Warne, Rob Marchant or your usual Crowe contact.

Budget 2021

What do the announcements mean for you and your organisation?

Insights

The important dates and details if you deferred VAT due to COVID-19.
Step by step instructions on how to access the Monthly Postponed Import VAT Statement (MPVIS).
The issue and some possible solutions for the impact of COVID-19 on VAT recovery for charities.
The important dates and details if you deferred VAT due to COVID-19.
Step by step instructions on how to access the Monthly Postponed Import VAT Statement (MPVIS).
The issue and some possible solutions for the impact of COVID-19 on VAT recovery for charities.

Contact us

Robert Marchant
Robert Marchant
Partner, VAT and Customs Duty services
London
Robert Warne
Rob Warne
Partner, Head of VAT and Customs Duty services
London