The announcements on VAT and stamp duty land tax were primarily extensions to existing support measures. Hospitality and tourism businesses will continue to benefit from VAT cuts, which will continue until April 2022. The stamp duty land tax holiday for home buyers has been extended and tapered, fully returning to the standard rate in October 2021. It was also confirmed that the £85,000 VAT registration threshold will remain unchanged until 31 March 2024.
Extension to the temporary reduced rate of VAT
The 5% reduced rate of VAT for the hospitality and tourism sectors has been extended to 30 September 2021. A reduced rate of 12.5% will then apply until 31 March 2022.
The temporary 5% reduced rate for the tourism and hospitality sectors, which has applied since 15 July 2020, has been extended for another 6 months to 30 September 2021.
This will be followed by a new interim reduced rate of 12.5% for a further 6 months to 31 March 2022, before reverting back to the standard rate from 1 April 2022.
These measures apply to supplies of restaurant services, hot takeaway food, holiday accommodation and admission to many attractions.
The extension of these measures will be a huge relief to one of the sectors hardest hit by the pandemic and ensures that the benefit covers the important summer season.
Although there is no requirement to do so, businesses may choose to pass on some or all of the savings to their customers.
It is worth noting that the scope of these measures has not been expanded, so the sale of alcoholic beverages will continue to be subject to VAT at the standard rate of 20%.
When will it apply?Reduced rates will continue to apply until 31 March 2022.
Stamp duty land tax nil rate band for residential properties temporarily extended
The stamp duty land tax (SDLT) nil rate band for residential properties will remain at £500,000 until 30 June 2021. It will then reduce to £250,000 until 30 September 2021 before returning to its previous level of £125,000 from 1 October 2021.
On 8 July 2020, the Chancellor announced that the SDLT nil rate band, being the first slice of consideration on which the SDLT rate is 0%, would increase from £125,000 to £500,000. This was a temporary measure and was planned to end on 31 March 2021.
The Government has now confirmed that the nil rate band will remain at £500,000 until 30 June 2021. It will then reduce to £250,000 from 1 July 2021 before returning to £125,000 from 1 October 2021.
When compared to the pre-8 July 2020 SDLT rates, this measure represents a tax saving of up to £15,000 for a property purchase in excess of £500,000. From 1 July 2021 until 30 September 2021, the potential saving will reduce to £2,500.
Our commentThis measure will be welcome news for those looking to purchase a property and should also continue to provide stimulation to the housing market, which particularly suffered during the Spring 2020 lockdown when transactions were largely put on hold.
When will it apply?
This is a continuation of an existing measure, to be adjusted from 1 July 2021 and to end on 30 September 2021.
VAT registration threshold
The VAT registration and deregistration thresholds will remain unchanged.
The VAT registration and deregistration thresholds, £85,000 and £83,000 respectively, will remain unchanged until 31 March 2024.
The UK has the highest registration threshold compared to European Union (EU) and Organisation for Economic Co-operation and Development (OECD) members, despite the thresholds remaining the same since 2017.
Whilst the impact of these measures is likely to be negligible, they do at least provide businesses with some certainty for the next three years.
When will it apply?
The thresholds will remain at their current levels until 31 March 2024.
New payment scheme for deferred VAT
Businesses that used the VAT deferment arrangements can opt to spread the repayment over 11 instalments under the new payment scheme.
Businesses that deferred VAT payments that were due between 20 March and 30 June 2020 can choose to spread the payment over equal instalments up to an additional 11 months, rather than making the payment in full by 31 March 2021.
It was also announced that a penalty of 5% will apply for any amount that is still outstanding at 30 June 2021, unless the business has opted into the new payment scheme or alternative arrangements have been agreed with HMRC.
While the measures will help businesses struggling to repay the deferred VAT in full, it is important that action is taken to pay the deferred VAT or opt into the new payment scheme as soon as possible. The 5% penalty for failure to take any action could be very costly and could wipe out any benefit gained by the deferment arrangements.
When will it apply?
Business can opt in from March 2021.
Extension of Making Tax Digital to all VAT registered businesses
It has been confirmed that all VAT registered businesses must comply with Making Tax Digital (MTD) with effect from 1 April 2022.
As previously announced in July 2020, all VAT registered businesses must be compliant with MTD with effect from 1 April 2022.
Currently, VAT registered businesses that have never exceeded the VAT registration threshold are not required to comply with MTD, although can do voluntarily.
VAT registered businesses that trade below the registration threshold and have not yet voluntarily joined MTD must ensure they make the necessary arrangements to be MTD compliant no later than April 2022.
The 1 April 2022 date coincides with a new penalty regime for late payment and late submission of VAT returns, which also includes failure to comply with MTD.
When will it apply?
From 1 April 2022
New penalty regime for late submission and payment of VAT
Changes to the current penalty system for late payment of VAT will come in with effect from 1 April 2022. These will see potential penalties for both late submission and late payment, whereas the current penalty regime financially penalises late payment only.
The changes to the current penalty regime, effective from 1 April 2022, will see the introduction of a points-based system for late submission and a percentage-based penalty for late payment.
The new late payment penalty regime will apply penalties calculated as a percentage of underpaid tax at set trigger points. The first penalty will be charged after 15 days at 2%, or will be charged at 4% if between 16 and 30 days late. A second penalty will be charged at an annualised rate of 4% from day 31, calculated on a daily basis.
Under the points-based system for late submission, exceeding the points threshold, which differs depending on whether the business submits annual, quarterly or monthly returns, will result in a fixed penalty of £200. For businesses that submit quarterly VAT returns, four late submissions within a 24 month period will result in this fixed penalty. Further late submissions within the same 24 month period will result in a further fixed £200 penalty.
While the new penalty system appears to be more complicated than the current provisions, it does overall seem to be fairer and should help encourage compliance.
Businesses will have an additional 15 days' grace to pay the outstanding VAT without incurring a penalty, and are likely to incur lower penalties. The maximum penalty under the current provisions is 15% of the VAT outstanding, and under the new system it will take over a year to accumulate a penalty of 8%.
When will it apply?
For accounting periods beginning on or after 1 April 2022.
Non-UK resident stamp duty land tax
As announced in Budget 2020, a 2% surcharge above existing residential stamp duty land tax (SDLT) rates will be introduced for acquisitions of residential property by non-UK residents from 1 April 2021.
The Government has confirmed that a proposed 2% SDLT surcharge will apply to purchases of residential property in England and Northern Ireland with an effective date from 1 April 2021. The surcharge will apply in addition to the existing rates, including the 3% surcharge that applies to acquisitions of second properties.
Draft legislation providing for the changes, which will apply to purchases by both individuals and ‘non-natural persons' such as companies, trusts and partnerships, was published in 2020. The draft legislation includes details on those treated as non-UK resident for the purposes of the charge, with definitions that differ from those for the purposes of other UK taxes.
The surcharge only applies to transactions involving residential property in England and Northern Ireland, as Scotland and Wales have separate land transaction taxes.
This change was first proposed in Budget 2018 and consulted on in 2019, so has been expected for some time. The rate of the surcharge was initially proposed at 1%, but in Budget 2020 it was announced that it would be increased to 2%.
The policy aim of the charge is to improve affordability of residential property for UK resident purchasers. Whether or not this will have the desired effect on residential property demand remains to be seen, but the fact that the surcharge applies on top of existing charges such as the additional 3% charge for acquisitions of second properties and the increased rates for acquisitions by ‘non-natural persons’ means that the top rate of SDLT for non-UK residents will now be 17%.
When will it apply?
The change will apply from 1 April 2021
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.