VAT 2021 – What Should You Expect This Year!

Calling 2020 an eventful year won’t be an exaggeration. Whether it was the Coronavirus pandemic and subsequent economic slowdown or Brexit, the United Kingdom was a witness of tectonic changes in VAT and Indirect policies. For instance, due to pandemic drove the government to announce postponement for VAT payment and reduction in VAT rates for the hospitality sector. Also, last year we even saw considerable changes in the HMRC policy and updated tips for the recovery for import VAT.

During the recent budget session, the UK government announced the VAT payment threshold until 1st April 2024.

These changes have set the tone some more transformations, including a myriad of measures. It is believed that many of these changes include wide ranging reforms that aim to impact businesses. Here, we have outlined a few of top changes that you should expect in the coming days:

The New Way of Trading Under the New EU-UK Agreement

Under the EU-UK trade and cooperation agreement, all businesses in the UK will be required to identify the steps they take in relation to supply chains, VAT registrations and cashflow. Some key areas where you might need to pay attention are:

  • Set up additional administration required for sales and purchase of goods from and to the European Union.
  • If your business operations are based in Northern Ireland, you need to take care of complexities.
  • Changes in the accounting systems to accommodate the new rules of VAT deferral, postponed VAT Accounting and cash implications.

VAT Payment Deferral Plans

Recently, the UK government announced the long due instalment payment plans for VAT payments that were due for the period of March – June 2020. Businesses that were unable to pay their VAT can pay the total sum by 31st March 2021. Also, companies can opt for instalment plans and pay the entire sum over a period of 11 months between March 2021 to January 2022.

Also, the government has announced 21st June to be the last date to join in the VAT deferral payment scheme.

Change in VAT Rates for Hospitality and Leisure

The reduction of 5% rate for the leisure and hospitality sector that was introduced to assist the businesses grappling with the social distance and stay at home is going to be over on 31st March 2022. The 5% VAT will continue until 30th September 2021, will gradually increase to the transitional rate 12.5% and eventually to its original 20% from 1st April 2022.

Moreover, flat rate reduction scheme for VAT users in hospitality sectors are as follows:

  • Those in the catering services have to pay 4.5% until 30th September 2021 and 8.5% following this until 31st March 2022.
  • Hotels are supposed to pay 0% until 30 September 2021. These rates will increase from 0% to 5.5% up till 31st March 2022.
  • For pubs, they have to pay 1% until 30th September 2021 which will surge to 4% by 31st March 2022.

Upcoming Change in the Online Sales Tax

The UK Government has been contemplating the potential implementation of a fresh 2% sales tax believed to be levied on online businesses. Also, there are speculations that a possible new tax on consumer deliveries will be implemented to level up the game between online and brick and mortar stores. This would result in a significant change of approach and likely to create long term ripples along with the current Digital Services Tax (DST).

Reverse VAT and Its Impact on Construction Industry

Reverse VAT aims to combat any fraud in the construction industry. The measure is quite similar to the reverse charges that levied on sale of computer chips and mobile phones. Under this rule, a VAT registered business supplying certain construction services to other VAT registered businesses, will have to issue a VAT invoice saying the service is subjected to the reverse charge.

With reverse VAT coming into effect, the construction sector has to ensure their accounting systems can effectively process the reverse charge supplies. Also, they need to ensure that supplies and purchases are done properly.

These major changes in VAT might make the already complicated taxation, even more complex. You need professional assistance from some of the experts in the field to stay on the top of your game. Accrels is a leading cloud accounting and virtual bookkeeping company with years of experience in handling UK taxation.