Budget 2021 – Further Changes Explained

On 3 March 2021 the Chancellor delivered his 2021 Budget upon the backdrop of the current Covid pandemic, and the Governments continued pledge to support businesses through the crisis.

While the Budget contained many numbers of changes in regard to the direct side of taxation, there were very a few changes in regards to VAT, for which many would have given a sigh of relief given the massive fundamental changes businesses and advisors alike have had to couple with since the beginning of this year with the changes surrounding Brexit and the more recent introduction of the reverse charge in the construction industry.

Below is a brief summary of the VAT changes announced in the Budget.

VAT Registration and Deregistration

The VAT registration and deregistration thresholds will remain unchanged at £85000 and £83000 respectively until 31 March 2024.

Extension of the reduced rate of VAT in the hospitality and tourism industry.

Since July 2020, the reduced rate of 5% VAT has applied to certain supplies within the hospitality and tourism industries, including served food in pubs and restaurants, hot takeaway food, hotel and holiday accommodation and admission to certain attractions in order to assist business in those industries cope with the effects of the Covid pandemic.

This temporary period of reduced rating was scheduled to end in January 2021 but this was extended to 31/3/2021.

However, in his Budget the Chancellor announced that this temporary period of reduced rating was to be extended again until 30 September 2021, after which it will be replaced with a new 12.5% VAT rate until 31 March 2022, when the VAT rate will return to the normal standard rate.

Previously revised Flat Rate Scheme percentages were published for those sectors to reflect the temporary reduced rate and it is expected that further revised Flat Rate Scheme percentages will be published before the change to 12.5% on 30 September 2021.

Repayment Scheme for VAT payments deferred between 20/3/2020 and 30/6/2020.

At the beginning the first Covid pandemic lockdown the Government announced that businesses with VAT return payments due between 20/3/2020 and 30/6/2020 could defer these payments, with the intention that payment of this deferred VAT would be made in full by those businesses by 31/3/2021.

This deadline was subsequently altered with the announcement of a new scheme to allow those businesses to pay in instalments, requiring the business to register for the scheme and set up a Direct Debit to make each instalment payment.

This scheme has now been set up and the link below allows a busines to register for the scheme.

Click here.

However, in the Budget the Chancellor announced the introduction of a penalty which will be levied against those business that, by 30/6/2021, have not either:

  • paid the deferred payment in full; or
  • registered for the new payment scheme; or
  • made alternative arrangements with HMRC to pay the deferred VAT

If a business has not one of the above conditions, then the penalty will to be calculated at 5% of the outstanding deferred VAT.


Replacement of the Default Surcharge regime for late submission or payment of VAT returns.

The Chancellor also announced that the Default Surcharge system used to penalise the late submission of VAT returns of late payment of the VAT due on VAT returns is to be replaced with a new ‘points-based’ system.

This new system will apply to VAT returns due for VAT periods returns beginning on or after 1/4/2020.

It is expected that full details will be published in due course, before its introduction but the link below provides HMRC’s initial advise on how the system will work and be applied.


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