The reduced rate VAT for hospitality venues is to end tomorrow with the VAT rate increasing from 12.5% back to the original 20%
The VAT reduction, which was introduced for businesses trading in the hospitality sector in June 2020, ends on 1 April with the VAT rate going back up to its original rate of 20%.
The reduction in VAT was given to VAT-registered businesses from the hospitality, hotel and holiday accommodation sectors to financially support them during the initial lockdown of the Covid-19 pandemic. VAT originally dropped to 5% in July 2020 with the rate increasing to 12.5% in October 2021.
The Federation of Small Businesses (FSB) stated that the increased VAT is just another hit to businesses still struggling to recover from the pandemic. In addition, 31 March is the final day that businesses can pay back in full deferred VAT covering the period to June 2020.
UKHospitality stated that the move ‘might prove fatal’ for business owners and that the removal of the lower rate lifeline ‘dashes the hopes that many businesses could begin to recoup some of the losses of the last two years’.
Kate Nicholls, chief executive, UKHospitalty said: ‘Locking in VAT at 12.5% would have given hospitality businesses a major boost and helped the sector in its ambition to lead the UK back to post-Covid prosperity.
‘As it is, thousands of jobs could be lost, the UK will remain uncompetitive versus international rivals, and already hard-pressed consumers in the midst of a cost-of-living crisis will see price rises in their favourite pubs, bars and restaurants, further fuelling inflation.’
Described by the FSB as the ‘April flashpoint’ from 1 April the national living wage rate for over 23s goes up to £9.50, the 66% business rates discount comes to an end, and the requirement for businesses to make their VAT returns Making Tax Digital (MTD) compliant is also introduced.
From 3 April, Statutory Sick Pay (SSP) is also set to rise to £99.35, and from 6 April the 1.25% increase to National Insurance contributions (NICs) hits employees, employers, and sole traders, as well as a rise in the dividend rate.
The FSB highlights that according to statistics from the Office of National Statistics (ONS) Covid-19 infection rates are rising with one in seven business not currently trading at full capacity due to infection rates.
The current cost of living crisis, rising Covid cases, and the rapidly increasing inflation and energy costs, are causing ‘huge anxiety’ for businesses across the UK with 5%, which is around 250,000 businesses, fearing ‘imminent collapse’, FSB warned.
Martin McTague, national chair, FSB, said: ‘There’s no use hiding from the facts though: this April flashpoint will push some firms to the brink.
‘The spiralling energy costs are causing huge anxiety for small firms trying to navigate the energy market remaining sandwiched between domestic consumers protected by a price cap, and big corporates, which have the leverage to secure the best deals.
‘With so many business owners and employees now forced to isolate as Covid infection rates soar, we and the TUC are urging the government to launch a permanent a sick pay rebate that covers all absences to protect livelihoods.’
Since the beginning of 2022, the Treasury has collected nearly £4m extra a day in fuel VAT due to the increasing price of petrol which totals an extra £270m so far this year
The data, compiled by former Office National Statistics (ONS) statistician Jamie Jenkin and provided by RAC, shows that as the average price of petrol has increased to 161.06p per litre since the beginning of 2022.
Jenkin highlighted in a Twitter thread that over half of what is paid at petrol pumps goes to the UK government in tax with 57.98p being fixed for every litre and 20% of the setting price being taken in VAT. If this price goes up by 10p then the government gets an additional 2p.
Jenkin stated that due to the fact that petrol prices have increased by 14p since the beginning of January and that 133m litres of petrol are purchased each day, the current fixed rate and VAT means that the Treasury is estimated to be taking at least an extra £3.7m each day. This means that over the 73 days so far this year, the Treasury has brought in an extra £270m in VAT from fuel.
According to data released by the Department for Business, Energy, and Industrial Strategy (BEIS) shows that the increase between 28 February and 7 March was the sharpest in 18 years, with the average price of a litre of petrol rising from 149.2p to 153.0p, the average diesel price rose from 153.4p to 158.6p.
With the ongoing crisis in Ukraine, the cost of fuel is expected to continue to rise significantly over the coming few weeks.
Jenkins told Accountancy Daily: ‘As fuel prices rise, the Treasury receives an extra £3.7m a day since the beginning of January.
‘The VAT take for fuel is rising and with the added cost for families, this is an area where the Chancellor could temporarily cut back next week. There are a few areas he can also look to help out families with the cost of living.
‘A temporary cut in fuel duty, or a suspension of the green levy on household energy bills would be a welcome boost with costs soaring. With extra money coming in through VAT on these increased fuel bills, he has some room for manoeuvre.’
Many are urging Rishi Sunak to act on the increased cost of living in next week’s Spring Statement, with the RAC calling on the Chancellor to cut VAT on fuel and to reduce fuel duty.
A spokesperson from the RAC said: ‘Prices at the pumps have been breaking records on a daily basis and to make matters worse the price increases have been seriously steep recently. We believe the Chancellor must take immediate action by cutting VAT on fuel to at least 15% to give drivers some instant respite and to protect them from future increases.
‘The Chancellor could also temporarily reduce fuel duty, which is currently levied at 58p per litre, reducing this would help both businesses and consumers.’
Last week, the RAC promoted a petition which has gathered increased momentum due to the impact the Russian invasion of Ukraine has had on the price of fuel.
According to the petition: ‘The government should reduce the cost of fuel through a reduction of 40% in fuel duty and VAT for two years. This can effectively offset the rise in fuel prices since 2020.
‘We believe people may understand to a degree the need for tax following the pandemic however prices of £1.50 or more per litre will cancel out any understanding. The government has the ability to sacrifice some revenue to appease the British public.’
Businesses that deferred VAT payments last year have less than a month left to join online and pay in monthly instalments under the VAT Deferral New Payment Scheme, HMRC has warned.
The online portal for the new payment scheme will close on 21 June 2021.
Over half a million businesses deferred £34 billion in VAT payments due between March and June 2020 under the VAT Payment Deferral Scheme. Businesses had until 31 March 2021 to pay this deferred VAT or, if they could not afford to do so, they could go online from 23 February to set up a new payment scheme and pay by monthly instalments to spread the cost.
Jim Harra, HMRC’s Chief Executive, said:
‘Businesses that deferred paying their VAT last spring have until 21 June to join the VAT Deferral New Payment Scheme online. They should act now to avoid missing out on this opportunity to spread payment of their deferred VAT across monthly, interest-free, instalments.
‘The new payment scheme is part of the Government package of support worth over £350 billion to help protect millions of jobs and businesses during the pandemic and as we emerge on the path to recovery.
‘HMRC will continue to do all we can to help businesses as they reopen and rebuild.’
HMRC has announced that businesses that deferred VAT payments last year can now join the new online VAT Deferral New Payment Scheme to pay it in smaller monthly instalments.
To take advantage of the new payment scheme businesses will need to have deferred VAT payments between March and June 2020, under the VAT Payment Deferral Scheme. They will now be given the option to pay their deferred VAT in equal consecutive monthly instalments from March 2021.
Businesses will need to opt-in to the VAT Deferral New Payment Scheme. They can do this via the online service that opened on 23 February and closes on 21 June 2021.
Jesse Norman, Financial Secretary to the Treasury, said:
‘The Government has provided a package of support worth over £280bn during the pandemic to help protect millions of jobs and businesses.
‘This now includes the VAT Deferral New Payment Scheme, which will help provide businesses with the breathing space they may need to manage their cashflows in the weeks and months ahead.’
HMRC has issued some guidance to taxpayers that deferred their VAT payments between 20 March and 30 June 2020 and still have payments to make.
HMRC is advising taxpayers who deferred their VAT payments to:
- pay the deferred VAT in full on or before 31 March 2021
- or opt in to the VAT deferral new payment scheme when it launches in 2021
- or to contact HMRC if they need more help to pay.
Taxpayers can pay their deferred VAT in full by 31 March 2021. There is no need to contact HMRC. However, if taxpayers want to use the new payment scheme they will need to opt in. The new online opt in process will be available in early 2021. Taxpayers will need to opt in themselves as this cannot be carried out by tax agents.
Where taxpayers opt in to the VAT deferral new payment scheme instead of paying the full amount by the end of March 2021, they can make up to 11 smaller monthly instalments which are interest free. All instalments of the outstanding amount must be paid by the end of March 2022.
In order for taxpayers to use the scheme they must:
- still have deferred VAT to pay
- be up to date with their VAT returns
- opt in before the end of March 2021
- pay the first instalment before the end of March 2021
- be able to pay the deferred VAT by Direct Debit.
Taxpayers must prepare to opt in by:
- creating their own Government Gateway account if they do not already have one
- submitting any outstanding VAT returns from the last four years. You will not be able to join the scheme if you have not done so
- correcting errors on their VAT returns as soon as possible. Corrections received after 31 December 2020 may not show in their deferred VAT balance
- ensuring they know how much they owe, including the amount they originally deferred and how much they may have already paid.
Internet link: GOV.UK guidance
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HMRC has issued detailed guidance on the domestic reverse charge changes scheduled for 1 March 2021.
The reverse charge represents part of a government clampdown on VAT fraud. Large amounts of VAT are lost through ‘missing trader’ fraud. As part of this type of fraud, VAT is charged by a supplier, who then disappears, along with the output tax. The VAT is thus lost to HMRC. Construction is considered a particularly high-risk sector because of the potential to make supplies with minimal input tax but considerable output tax.
The reverse charge does not change the VAT liability: it changes the way that VAT is accounted for. From 1 March 2021 the recipient of the services, rather than the supplier, will account for VAT on specified building and construction services. This is called a ‘reverse charge’.
The reverse charge is a business-to-business charge, applying to VAT-registered businesses where payments are required to be reported through the Construction Industry Scheme (CIS). It will be used through the CIS supply chain, up to the point where the recipient is no longer a business making supplies of specified construction services. The rules refer to this as the ‘end user’.
Broadly then, the reverse charge means that a contractor receiving a supply of specified construction services has to account for the output VAT due – rather than the subcontractor supplying the services. The contractor then also has to deduct the VAT due on the supply as input VAT, subject to the normal rules. In most cases, no net tax on the transaction will be payable to HMRC.
The charge affects only supplies at standard or reduced rates where payments are required to be reported via CIS and not to:
- zero-rated supplies;
- services supplied to ‘end users’ or ‘intermediary suppliers’.
Under the scheme a VAT-registered business, receiving a supply of specified services from another VAT-registered business, for onward sale, on or after 1 March 2021:
- should account for the output VAT on supplies received through its VAT return
- does not pay the output VAT to its supplier on supplies received from them
- can reclaim the VAT on supplies received as input tax, subject to normal VAT rules.
The supplier should issue a VAT invoice, indicating the supplies are subject to the reverse charge.
An end user should notify its end user status, so the supplier can charge VAT in the usual way.
Businesses that have been affected by the COVID-19 pandemic and are seeking to make use of the VAT deferral have been urged to cancel their direct debits ‘as soon as they can’.
Businesses are advised to contact their bank to cancel their direct debits as soon as possible. UK VAT-registered businesses with a VAT payment due between 20 March 2020 and 30 June 2020 have the option to either defer the payment until a later date or pay the VAT due as normal.
A spokesperson for HMRC said:
‘For those customers who are unable to pay VAT due between 20 March and the end of June 2020, you have the option to defer that payment until 31 March 2021.
‘You will not need to apply for deferral as eligibility is automatic. Customers who normally pay by direct debit should cancel their direct debit with their bank if they are unable to pay. Please do this in sufficient time.’
The deferral does not cover VAT MOSS payments, and HMRC will not charge interest or penalties on any amount deferred. Businesses are still required to submit their VAT returns to HMRC on time.
Internet link: GOV.UK publications