VAT

5% VAT Rate for Food, Attractions and Accommodation Extended

With the UK having been adversely affected by the Coronavirus (COVID-19) pandemic, Chancellor Rishi Sunak presented the 2021 Budget against a backdrop of ongoing economic hardship. We’ve summarised the key points relating to VAT.

In order to continue to support businesses and jobs in the hospitality sector, the reduced 5% rate of VAT will continue to apply to supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises across the UK until 30 September 2021.

The 5% reduced rate of VAT will also continue to apply to supplies of accommodation and admission to attractions across the UK.

From 1 October until 31 March 2022 the rate will be set at 12.5% and will then revert to 20% from 1 April 2022.

For more information on the extension to the reduced 5% rate of VAT please click here.

Our summary of the Chancellor’s 2021 Budget is now available below.

Budget Summary

VAT deferral new payment scheme – join from 23 February

If you deferred paying VAT due in the period from 20 March to 30 June 2020, you should pay it by 31 March 2021 if you can. If you can’t afford to pay by 31 March 2021, you can join the VAT deferral new payment scheme and pay your deferred VAT over a longer period.

The online service is now open and will close on 21 June 2021. You can make up to 11 monthly instalments, interest free. The earlier you join, the more months you can spread your payments across.

You can join the scheme online without the need to call, click here for further details and to join quickly and simply online.

You should still pay in full if you can. If you need more time, please contact HMRC.

VAT Payments Deferral Scheme – correcting errors

If you notice an error on a VAT return which relates to a period covered by the VAT Payments Deferral Scheme, you should send a VAT652 form to HMRC as soon as possible. Click here for more information and to download the VAT652 form.

You will then receive a Statement of Account confirming your balance, and if any extra payments are needed as a result, you can contact HMRC to defer these too, before the end of January.

You can:

• pay the deferred VAT in full on or before 31 March 2021
• opt in to the VAT Deferral New Payment Scheme when it launches in early 2021 (more information to follow shortly)
• contact HMRC if you need more help to pay.

Pay VAT deferred due to Coronavirus

If you deferred VAT between 20 March and 30 June 2020 and still have payments to make, you can:

• pay the deferred VAT in full on or before 31 March 2021
• opt in to the VAT deferral new payment scheme when it launches in 2021
• contact HMRC if you need more help to pay

Instead of paying the full amount by the end of March 2021, the new payment scheme means you can make up to 11 smaller monthly instalments, interest free. All instalments must be paid by the end of March 2022.

Although the online opt in process will not be available until early 2021. There are some steps you can take to get ready to opt in to the new payment scheme.

Before opting in you must:

• create your own Government Gateway account if you don’t already have one
• submit any outstanding VAT returns from the last 4 years. You will not be able to join the scheme if you have not done so
• correct errors on your VAT returns as soon as possible. Corrections received after 31 December 2020 may not show in your deferred VAT balance
• make sure you know how much you owe, including the amount you originally deferred and how much you may have already paid

You should also:

• pay what you can as soon as possible to allow HMRC to show the correct deferred VAT balance
• consider the number of equal instalments you’ll need, from 2 to 11 months

Further information can be found here and we will include further guidance when the opt in process becomes available.

Deferral of VAT Bills

Up to half a million businesses who deferred their VAT bills will be given more breathing space through the New Payment Scheme, which gives them the option to pay back in smaller instalments. Rather than paying a lump sum in full at the end March next year, they will be able to make 11 smaller interest-free payments during the 2021-22 financial year.

VAT Cut for Hospitality Sector Continues

The reduction in VAT to 5% for the hospitality and tourism sector will be extended until 31 March 2021.

Further guidance will be issued in due course. See: Winter Economy Plan.

VAT: Reduced Rate for Hospitality, Holiday Accommodation and Attractions

The government has updated its guidance on reduced rate VAT. A new section about Retail Schemes has been added to the guide. Its original announcement was on 8 July 2020 allowing VAT registered businesses to apply a temporary 5% reduced rate of VAT to certain supplies relating to:

• hospitality
• hotel and holiday accommodation
• admissions to certain attractions

The temporary reduced rate will apply to supplies that are made between 15 July 2020 and 12 January 2021.

Retail schemes

Catering businesses using retail schemes may have to alter their accounting systems for the period 15 July 2020 to 12 January 2021.

If you have a bespoke retail scheme agreement, you should review it and if you think an alteration is needed, contact your large business Customer Compliance Manager. If you are not a large business customer you should contact: Kamran.Hussain@hmrc.gov.uk

Further information can be found here.

VAT Flat Rate Percentages Reduced

HMRC have updated their flat rate percentages for the businesses mostly affected by the Coronavirus pandemic.

Reduced rates will apply from 15 July 2020 to 12 January 2021.

• Catering services including restaurants and takeaways rate changed from 12.5% to 4.5%
• Hotel or holiday accommodation from 10% to 0%
• Pubs from 6.5% to 1%

The guidance can be found here.

Summer Economic Update

On 8th July, the Chancellor Rishi Sunak made a speech entitled “Summer Economic Update” where he unveiled further Government supports and he unveiled the Government’s plan for jobs which he described as the “Second phase in the Government’s economic response to the crisis.”

Please see our July e-news for the highlights on the following announcements:

• Coronavirus Job Retention Scheme (CJRS) and Job Retention Bonus
• Kickstart Scheme and Measures to Help People Find Work
• Value Added Tax Reduced Rate for Hospitality and Tourism Sectors
• Eat Out To Help Out Scheme
• Stamp Duty Land Tax Holiday
• Residential Rates on Purchases from 8 July 2020 to 31 March 2021

Economic Update

Today the Chancellor, Rishi Sunak, set out plans for the next stage of our economic recovery. Important announcements:

• Companies will receive a £1,000 bonus for each furloughed employee who is still employed as of 31 January 2021. 
• From today until 31 March 2021, buyers will pay no Stamp Duty on the first £500k when they move home. Nearly 9 out of 10 people getting on or moving up the property ladder will pay no Stamp Duty at all.
• The Government will cut the rate of VAT applied on tourism and hospitality related activities from 20% to 5% for six months.

More information on all the Chancellors announcements can be found here.

Businesses Need to Reinstate VAT Direct Debits

The deferral of VAT payments due to Coronavirus comes to an end on 30 June and businesses need to take action to reinstate their direct debit mandates.

The VAT payment deferral means that all UK VAT-registered businesses have the option to defer VAT payments due between 20 March and 30 June 2020 until 31 March 2021.

However, businesses need to take steps to reinstate their direct debit mandates so that they are in place in time for payments due in July 2020 onwards. Any outstanding returns should be filed, and three working days should be allowed to elapse before reinstating the direct debit mandate.

HMRC will issue guidance on the end of the VAT deferral period very soon but, to be effective, direct debit mandates usually need to be set up three working days before a VAT return is filed.

We cannot set up direct debit mandates on behalf of our clients; the business needs to set up the mandate through their business tax account.

HMRC has confirmed that it will not collect the outstanding balance of deferred VAT when the direct debit mandate is reinstated. HMRC has made the necessary systems change to avoid this happening for businesses in MTD for VAT.

Please click here for further information from HMRC.