As expected, the temporary 5% VAT rate for the hospitality and leisure sector has been extended. The rate cut was due to end on 31 March 2021 but will now be extended until September 2021. At that point, and with a view to easing those businesses back to the 20% VAT rate, there will be a reduced VAT rate of 12.5% until 31 March 2022. Users of the flat rate scheme will also be able to take a proportionate benefit of the 12.5% rate.
Whilst the VAT rate cut will be welcomed, the changes in rates will undoubtedly give rise to compliance issues for businesses having to deal with multiple VAT rates in a relatively short space of time.
The current VAT registration and deregistration thresholds (£85,000 and £83,000 respectively) will remain the same until 31 March 2024, to give small businesses certainty.
With effect from 1 April 2022, Making Tax Digital (MTD) will apply to all VAT registered businesses with a turnover below the current threshold of £85,000. Currently those businesses are not required to submit VAT returns via MTD or to keep digital records. This will be an additional burden to those small businesses who may have to incur costs to comply with the MTD rules.
If you have any questions regarding this article please contact Mercer & Hole’s VAT Director, Jane Stacey.