VAT in the Hospitality and Tourism Sector
Rishi Sunak has today promised to continue to help one of the hardest hit sectors as a result of the ongoing pandemic, the Hospitality and Tourism sector. It has been announced that the temporary VAT rate of 5% will be extended for a further 6 months until 30 September 2021, after which an interim VAT rate of 12.5% will be introduced from 1 October 2021 to manage the transition back to the full rate of VAT that is expected to return on 1 April 2022. The scope of the policy remains unchanged to that previously announced.
VAT Thresholds and Rates
The VAT registration threshold will remain set at £85,000 for a further 2 years and the VAT deregistration threshold of £83,000 will also remain unchanged.
There will be no increase in UK VAT rates.
Making Tax Digital
After the success of the previous Making Tax Digital roll out in 2019, the scheme has now been extended to draw in all VAT registered businesses with a taxable turnover below the current VAT threshold. These businesses will be required to operate Making Tax Digital for their VAT reporting and record keeping obligations from 1 April 2022.
VAT Penalties and Interest
A new points-based penalty regime will replace the existing VAT penalty regime for accounting periods on or after 1 April 2022 and will affect all those required to submit a VAT return and who fail to submit and / or pay on time. It has been designed to make the system both fair and simple and will penalise the small majority that consistently do not comply whilst being lenient on those that make the occasional slip up.
In summary, when a VAT liability is paid late the new penalty scheme will see no penalty applied if paid within 15 days of the due date. The first penalty is set at 2% and will be applied if the late VAT is paid between 16 – 30 days after the due date or a 4% penalty applied if paid over 30 days after the due date. A second penalty will be applied and charged at 4% per annum rate, calculated daily from day 31. Penalties can be avoided if a ‘Time to Pay Arrangement’ is agreed with HMRC.
When a VAT return is submitted late the tax payer will incur a point. Upon reaching the points threshold (Annually = 2 points / Quarterly = 4 points / Monthly = 5 points) the taxpayer will then be liable to a £200 fixed penalty. Individual penalties will expire after 24 months provided the threshold is not breached. Should the threshold be breached and the fixed penalty applied, all points will expire on the basis that reporting requirements are met for a set period. This change to the penalty regime appears to suggest that taxpayers may be issued with fixed penalties for late submission of both payment and repayment VAT returns.
VAT interest rules are also set to change so that interest will be charged from the date payment is due until the date the payments is received.
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