The principal indirect tax announcements in Budget 2021 were: extension of the reduced VAT rate for tourism and hospitality, along with a staged return to the standard rate by 31 March 2022; interest harmonisation of VAT with other taxes and reform of penalties for late submission and late payment of VAT; VAT powers to tackle electronic sales suppression; Freeports to operate from late 2021; and reduced restrictions on the users of rebated red diesel. This article contains extracts from, and links to, the Budget documents.
The following are extracts from the documents Budget 2021, Budget 2021 Policy costings, and Budget 2021: Overview of tax legislation and rates (OOTLAR).
2.46 VAT reduction for the UK’s tourism and hospitality sector – The government will extend the temporary reduced rate of 5% VAT for goods and services supplied by the tourism and hospitality sector until 30 September 2021. To help businesses manage the transition back to the standard 20% rate, a 12.5% rate will apply for the subsequent six months until 31 March 2022.
2.91 VAT threshold – The VAT registration and deregistration thresholds will not change for a further period of two years from 1 April 2022, giving businesses certainty.
VAT Tour Operators Margin Scheme (TOMS): Measure description
From 11pm on the 31 December 2020 the UK started to apply its own rules for UK tour operators. These allow tour operators to continue to account for VAT on the margin of supplies of tour operating services consumed within the UK. The new rules also allow tour operators to apply the zero rate to supplies consumed outside of the UK.
VAT: reversal of the removal of Second Hand Margin Scheme for cars: Measure description
This measure reverses the removal of the Second-Hand Margin Scheme. The reversal will be backdated to an initial implementation date of 1 January 2021. Previously, second-hand motor vehicles sold in Northern Ireland that were purchased in Great Britain after 1 January 2021 were to have VAT charged on the full sale price.
1.54 S4C Section 33 VATA
The government will legislate in Finance Bill 2021 to add S4C to the special VAT refund scheme for public bodies, which will allow S4C to receive a refund of VAT incurred on its public service activities.
1.42 Landfill Tax: rates for 2021 to 2022
As announced at Budget 2020 the government will legislate in Finance Bill 2021 to increase the standard and lower rates of Landfill Tax in line with RPI, rounded to the nearest 5 pence.
The change will have effect on and after 1 April 2021.
1.47 Climate Change Levy main and reduced rates
Following the announcement at Budget 2020, the government will legislate in Finance Bill 2021 for the Climate Change Levy main rates for 2022 to 2023 and 2023 to 2024 to continue to re-balance the electricity to gas ratio.
Also following the announcement at March Budget 2020, the government will legislate in Finance Bill 2021 to amend the reduced rates (discount percentages) so that businesses in the Climate Change Agreement scheme will only be subject to an increase to their Climate Change Levy liability in line with the Retail Prices Index (RPI) for the years 2022 to 2023 and 2023 to 2024.
1.50 Plastic Packaging Tax
As announced at Budget 2018 and confirmed at Budget 2020, the government will introduce a new Plastic Packaging Tax from 1 April 2022, with primary legislation introduced in Finance Bill 2021. The tax will encourage the use of recycled plastic instead of new plastic within packaging.
Budget 2020 announced the rate of the tax as £200 per tonne of plastic packaging which contains less than 30% recycled plastic content. Following a technical consultation, minor amendments have been made to the draft legislation to improve clarity in accordance with stakeholder feedback.
Read the Introduction of Plastic Packaging Tax from April 2022 tax information and impact note for more information.
2.83 Aggregates Levy – The government will freeze the Aggregates Levy rate for 2021-22 but intends to return to index-linking in future.
2.84 Carbon Price Support – The government will maintain the freeze on Carbon Price
Support rates at £18 per tonne of carbon dioxide in 2022-23. The government is committed to carbon pricing as a tool to drive decarbonisation and intends to set out additional proposals for expanding the UK Emissions Trading Scheme over the course of 2021.
2.86 Air Passenger Duty (APD) – APD rates will increase in line with RPI from April 2022, meaning that the reduced and standard short-haul rates will remain frozen at the same level since 2012, benefitting over 75% of passengers.11 Long-haul rates will increase in line with RPI. The rates for long-haul economy flights from Great Britain will increase by £2, and the rates for those travelling in premium economy, business and first class will increase by £5. Those travelling long-haul by private jets will see the rate increase by £13.
2.94 Gaming duty – The government will legislate in Finance Bill 2021 to raise the Gross Gaming Yield bandings for gaming duty in line with RPI. The revised gross gaming yield bandings used to calculate gaming duty must be used for accounting periods beginning on or after 1 April 2021.
Red Diesel exemptions: Measure description
Budget 2020 announced that the government will remove the entitlement to use red diesel and rebated biofuels from April 2022, except for agriculture (as well as horticulture, fish farming and forestry), rail vehicles and non-commercial heating. Following consultation, this measure confirms further sectors that will retain entitlement to use red diesel beyond April 2022: those using red diesel to power vessels for commercial purposes, including fishing and water freight; travelling funfairs and circuses; amateur sports clubs including golf courses; and for non-commercial power generation.
Finance Bill 2021 will also extend fuel duty to biofuels and fuel substitutes used in heating, applying lower rebated rates when used for non-commercial heating. Regulations will be laid in early 2022 to make consequential amendments to the relevant statutory instruments.
Avoidance, evasion and non-compliance
2.95 Interest harmonisation and reform of penalties for late submission and late payment of tax – The government will reform the penalty regime for VAT and Income Tax Self Assessment (ITSA) to make it fairer and more consistent. The new late submission regime will be points-based, and a financial penalty will only be issued when the relevant threshold is reached. The new late payment regime will introduce penalties proportionate to the amount of tax owed and how late the tax due is. The government will introduce a new approach to interest charges and repayment interest to align VAT with other tax regimes. These reforms will come into effect: for VAT taxpayers, from periods starting on or after 1 April 2022; for taxpayers in ITSA with business or property income over £10,000 per year, from accounting periods beginning on or after 6 April 2023; and for all other taxpayers in ITSA, from accounting periods beginning on or after 6 April 2024.
2.96 Powers to tackle electronic sales suppression (ESS) – The government will introduce new powers to make the possession, manufacture, distribution and promotion of ESS software and hardware an offence. This will enable HMRC to tackle tax evasion undertaken by those businesses that use software and hardware to hide or reduce the value of transactions and the corresponding tax liabilities. New ESS-specific information powers will allow HMRC investigators to identify developers and suppliers in the ESS supply chain and access software developers’ source code.
VAT: powers to tackle Electronic Sales Suppression: Measure description
The measure tackles the form of tax evasion known as electronic sales suppression (ESS). ESS is where a business deliberately manipulates its electronic sales records in order to hide or reduce the value of individual transactions, thereby reducing tax liabilities. The measure will be effective from February 2022.
2.97 OECD reporting rules for digital platforms – The government will consult on the implementation of OECD rules that will require digital platforms to send information about the income of their sellers to both HMRC and the seller themselves. This will help taxpayers in the sharing and gig economy get their tax right, and help HMRC detect and tackle non-compliance.
2.99 Tackling promoters of tax avoidance – The government is publishing a summary of
responses following the recent consultation ‘Tackling Promoters of Tax Avoidance’.16 This sets out a package of measures to strengthen existing anti-avoidance regimes and tighten the rules designed to tackle promoters and enablers of tax avoidance schemes.
The legislation, which will take effect following Royal Assent, will:
- strengthen information powers for HMRC’s existing regime to tackle enablers of tax avoidance schemes and ensure enabler penalties are issued sooner for multi-user schemes
- enable HMRC to act promptly where promoters fail to disclose their avoidance schemes under the Disclosure of Tax Avoidance Scheme and Disclosure of VAT and other Indirect Taxes (DOTAS and DASVOIT) regimes
- allow HMRC to stop promoters from marketing and selling avoidance schemes earlier and ensure promoters fulfil their obligations under the Promoters of Tax Avoidance Schemes (POTAS) regime
- make further technical amendments to the POTAS regime, so the regime can continue to operate effectively
- make additional changes to the General Anti-Abuse Rule (GAAR) so it can be used as intended to tackle avoidance using partnerships.
2.102 Amendment to the Customs and Excise Management Act – The government will legislate in Finance Bill 2021 to introduce a civil penalty for the unauthorised removal of goods that have been seized from the trader’s premises, or ‘in situ’. A penalty will apply to traders removing seized goods without prior authorisation from HMRC. The change will have effect from Royal Assent of Finance Bill 2021.
2.104 Investment in HMRC - The Government will invest a further £180m in 2021-22 in additional resources and technology for HMRC. This is forecast to bring in over £1.6bn in additional tax revenues in the period to 2025-26 by enabling HMRC to:
- invest in IT systems to enable taxpayers to more easily access tax services and make collection and payments of tax to taxpayers easier;
- recruit additional compliance staff to tackle non compliance through illicit financial flows; … and
- continue to fund compliance work on the loan charge, disguised remuneration and tax avoidance schemes.
2.113 Freeports in England – East Midlands Airport, Felixstowe & Harwich, Humber, Liverpool City Region, Plymouth and South Devon, Solent, Teesside and Thames have been successful in the Freeports bidding process for England. Subject to agreeing their governance arrangements and successfully completing their business cases, these Freeports will begin operations from late 2021. The Freeports will contain areas where businesses will benefit from more generous tax reliefs, customs benefits and wider government support, bringing investment, trade and jobs to regenerate regions across the country that need it most.
2.114 Freeports in Scotland, Wales and Northern Ireland – Freeports will benefit
the whole of the UK. Discussions continue between the UK Government and the devolved administrations to ensure the delivery of Freeports in Scotland, Wales and Northern Ireland as soon as possible.
1.51 Amendment to Customs and Excise review and appeals legislation
As announced at Budget, the government will legislate in Finance Bill 2021 to give HMRC the power to temporarily approve businesses that appeal a decision to revoke their approval to operate within certain due diligence schemes, designed to protect the payment of duties on goods.
This measure will preserve the businesses’ right of appeal, by ensuring that those that entirely depend on such approval to legally trade have the opportunity to remain financially viable, while their appeal is being heard.
Temporary approval will only be allowed in certain circumstances and will last only while the business pursues its appeal. Legislation will take effect following Royal Assent. Read the Amendment to Customs and Excise review and appeals legislation tax information and impact note for more information.
Sector specific support measures already announced
2.45 VAT Deferral New Payment Scheme – Any business that took advantage of the
original VAT deferral on VAT returns from 20 March through to the end of June 2020 can now opt to use the VAT Deferral New Payment Scheme to pay that deferred VAT in up to eleven equal payments from March 2021, rather than one larger payment due by 31 March 2021, as originally announced.
A.19 VAT deferral – In July 2020, the government announced that UK VAT-registered
businesses did not need to pay any VAT due with VAT returns from 20 March through to the end of June 2020 before the end of March 2021. Around 600,000 businesses deferred VAT payments between March and June 2020, a cash injection of £34 billion into the UK economy. At the Winter Economy Plan, the government announced the VAT deferral ‘New Payment Scheme’, which is an available option for any business that took advantage of the original VAT deferral. Instead of paying the full deferred VAT outstanding by 31 March 2021, businesses can spread what they owe over up to 11 smaller monthly payments from this month. Businesses can join the service online without needing to contact HMRC. The service opened on 23 February 2021 and will close on 21 June 2021, with fewer instalments where take-up is in April (up to 10 instalments), May (up to nine instalments) and June (up to eight instalments), to ensure that full payment is received by the end of the financial year. Please see ITH 2021/07 and ITH 2021/09.
A.35 VAT on electronic publications – At Budget 2020, the government announced it would legislate to apply a permanent zero rate of VAT to supplies of electronic publications from 1 December 2020 to support literacy and reading in all its forms. Following the outbreak of COVID-19 and to help reduce the cost of access to electronic publications when many people have been confined to their homes and schools closed, the government legislated to bring forward the implementation date to 1 May 2020. Please see ITH 2020/17.
VAT: repeal the VAT Treatment of Transactions Order 1992: Measure description
The measure corrects an anomaly and prevents public sector bodies from claiming 100% refunds of VAT for their employees’ own cars supplied under salary sacrifice arrangements. Instead public sector bodies will recover 50% as originally intended. Please see ITH 2020/46.
If you would like to discuss any of these announcements, please contact your usual PwC indirect tax adviser.