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Yesterday, Chancellor Rishi Sunak announced a number of measures aimed at continuing support due to the ongoing COVID-19 crisis. Among these were a couple of important VAT announcements.

VAT to stay at 5%

The first change concerns the VAT rate in the hospitality and tourism sector. The lower rate of 5% was brought in on 8 July 2020 and applies to those businesses supplying food and non-alcoholic drinks as well as those providing accommodation or running tourist attractions. The 5% rate was always going to be a temporary measure and was due to go back up to 20% on 13 January 2021. This has now been extended to 31 March 2021.

Extending the rate is expected to protect 150,000 businesses and help alleviate the new 10pm curfew imposed on hospitality venues. Some businesses are passing the reduction on to customers, but the vast majority are using it to help with cashflow.

VAT payments

The second announcement relates to the VAT payment deferral which allowed businesses to defer VAT payments due between 20 March and 30 June 2020. This basically allowed a deferral of the VAT due to be paid in respect of the February, March and April 2020 VAT Returns, with the deferred liability being due by 31 March 2021.

Under the new announcement, businesses won’t have to pay the deferred VAT as one lump sum. Instead, the Government will allow the VAT payment to be repaid in 11 instalments during the 2021-22 financial year. No interest will be charged on this payment. Those wishing to take advantage of the instalment plan will need to opt-in to the New Payment Scheme and HMRC will provide further information on how to do so in early 2021.

Up to half a million businesses are eligible for the instalment plan who deferred approximately £30 billion. The ability to spread the payments has been welcomed. Many within the industry warned that businesses would face a ‘cliff edge’ come March 2021 without such a measure.

Govt reminder re current VAT

On 11 September, the Government issued a reminder regarding VAT filing and payment obligations. This stated that the deferral scheme ended on 30 June 2020 and VAT due after this date would need to be paid in accordance with the standard rules. 

The reminder stated that “all VAT customers, including MTD customers, are required to file and pay on time”. This means there is no deferral for VAT due to be paid after 30 June 2020.

The notice went on to caution: “We want to ensure customers understand the situation, and are clear that they will be at ‘default’ if they fail to meet their VAT obligations and may face a penalty as well as being charged interest on any tax that is due”. 

Keeping up with changes to VAT

The rapid changes we’ve seen in tax this year illuminate the need for Making Tax Digital software that can be updated and flag/respond to changes in rates, obligations and payment periods. 

Tax logic can help ensure that your business doesn’t miss changes in the VAT rules, can manage new VAT obligations and keep up in a constantly evolving tax landscape. 

To find out how AlphaVAT, our compliance engine, can help you keep up with, apply and benefit from changes in tax regulation, please contact us for a demo.