Billed as a once-in-a-generation budget, it was packed with announcements. But there will surely be much more to come in the years ahead as the UK seeks to grow its economy, not least an increase in the VAT rate as the deficit is reduced through higher tax revenues rather than spending cuts.
Despite fuelling a burst in transactional activity, the much-feared and potentially divisive hike in capital gains tax has not materialised…..yet. Indeed, the budget contained a number of potentially pro-entrepreneurial reviews and consultations which could see much needed extensions to the scope of R&D tax reliefs and EMI, HMRC’s flagship employee share plan.
The balance between generating much-needed tax revenues and promoting growth is a fine one. It therefore remains to be seen what the further Treasury consultations (due on 23 March 2021) will bring and whether these could be used to bolster the corporation tax increases and allowance freezes that were announced today.
Some of the detail is summarised below.
VAT
Hospitality, accommodation and attractions
The temporary reduced rate (5%) of VAT will be extended from 31 March 2021 to 30 September 2021, after which an interim lowered rate (12.5%) will apply until 31 March 2022. Both will be effective across the UK.
VAT penalties
HMRC's statutory VAT penalty regime is to be overhauled, including making VAT penalties more proportionate which has plagued the courts in recent years, who could do little about it. It will first take effect for periods starting on 1 April 2022. The new late submission regime will be points-based, and a financial penalty of £200 issued for every missed submission on and after relevant points threshold is reached. The new late payment regime will introduce penalties which are proportionate to the amount of tax owed and how late payment is, with no penalty chargeable on tax paid up to 15 days after the due date, a 2% penalty chargeable on tax paid between 16 and 30 days after the due date, which increases to 4% penalty chargeable on tax unpaid after 30 days, with the 4% charge repeating annually. Interest charges and repayment interest on VAT will be aligned with other tax regimes.
VAT thresholds
The VAT thresholds for registration (currently £85,000) and deregistration (currently £83,000) will be held for a further three years, until March 2024.
Deferred 2020 VAT liabilities
VAT liabilities deferred from 2020 under the pandemic were due to be paid in full by 31 March 2021, but HMRC’s VAT New Payment Scheme allows payments to be spread over time. The deadline for signing up has been extended to 30 June 2021, but the later the business opts in, the shorter the time over which payment can be spread. A penalty has also been confirmed for businesses who neither pay by 31 March 2021, nor join the VAT New Payment Scheme, not make other arrangements with HMRC to make payment: the penalty will be 5% of the deferred VAT outstanding, but the normal Default Surcharge approach will not be applied.
Margin scheme
The change to the post-Brexit margin scheme VAT rules has been confirmed: Northern Ireland is now included within the margin scheme, backdated to 1 January 2021, but only for used cars purchased in GB and sold in Norther Ireland. Our international margin scheme industry continues to suffer post-Brexit, more needs to be done!
Tour operator margin scheme
It is confirmed that tour operators and anyone using the Tour Operator Margin Scheme (TOMS) can continue to charge VAT only on their margins and can zero-rate their supplies consumed outside the UK.
Freeports
New freeports with improved VAT benefits have been announced at eight locations (including East Midlands Airport). Freeports are particularly efficient for importers.
Making Tax Digital (MTD)
The requirement to submit VAT returns automatically to HMRC will be extended to all VAT registered businesses with effect from 1 April 2022.
Red diesel
The use by businesses of red diesel (reduced duty and VAT) was to be heavily restricted, but the change in policy enable more business sectors to continue using the cheaper fuel.
Economic impact in VAT revenues
The Treasury's Red Book demonstrates the pandemic's impact on the economy, displayed in terms of VAT receipts:
2019-2020: £134bn
2020-2021: £120bn (forecast 10% fall)
2021-2022: £128bn (forecast 6.7% growth)
Anti-avoidance: electronic sales
Measures will be introduced from February 2022 to counter "Electronic Sales Suppression" (ESS), where a business deliberately manipulates its electronic sales records in order to reduce its tax liability.
Anti-avoidance: promoters
The Government confirmed that it will legislate in Finance Bill 2021 to enable HMRC to act promptly where promoters fail to disclose their avoidance schemes under the Disclosure of VAT and other Indirect Taxes (DASVOIT) regime.
Stamp Duty Land Tax (SDLT) and ATED
Extension to the SDLT temporary rates for residential purchases in England and Northern Ireland
The SDLT holiday (where the nil rate band threshold is set at £500k) will be extended until 30 June 2021 - it had been due to go back to normal on 31 March 2021. From 1 July 2021 to 30 September 2021 the nil rate band threshold will be set at £250k until 30 September 2021. From 1 October 2021 the nil rate band threshold will revert back to £125k.
SDLT relief for Freeports
A relief from SDLT will be introduced in Finance Bill 2021for purchases of land or property in designated tax sites within successful Freeports taking place in the period from tax site designation to 30 September 2026, subject to that land or property being acquired and used for qualifying purposes and subject to a control period of up to 3 years.
SDLT surcharge on non-UK residents
The previously-announced new SDLT surcharge of an additional 2% above the existing residential rates on non-UK residents purchasing residential property in England and Northern Ireland from 1 April 2021will go ahead.
Relief from ATED and the 15% SDLT rates for Housing Co-Operatives
From Budget Day there will be new ATED and SDLT reliefs new reliefs from ATED and the 15% rate of SDLT for certain qualifying housing co-operatives. For SDLT, the relief can be claimed for land transactions where the effective date of the transaction is on or after 3 March 2021. For ATED, the relief will apply to chargeable periods beginning on or after 1 April 2020, which will allow eligible housing co-operatives who have already paid ATED for that period to claim a refund.
Conclusion
Some of these announcements will affect businesses immediately (eg hoteliers and those working in the hospitality sector), others will be affected in the years to come.
Our tax and legal specialists are highly experienced and keen to deliver excellent advice and support to businesses. Please contact them for further information; or if you have any queries, please call or send a message, we welcome an opportunity to discuss.
