Many businesses in the hospitality, hotel and holiday accommodation sectors benefited from a reduction in the VAT rate that was designed to increase customer demand and help businesses to bounce back from the economic downturn caused by the pandemic.
The temporary cut in VAT from 20% to 5% applied from July 2020 until the end of September 2021, after which time the rate increased to 12.5%. The lower VAT rates applied to food and non-alcoholic drinks sold in restaurants, cafes and pubs and also to hotel/holiday accommodation and admission to attractions like theatres, museums, zoos, cinemas and concerts.
It was hoped that this reduced rate would remain for a while longer but unfortunately not; on 1 April 2022, the VAT rate will revert to 20%. Is your business ready for this change? Have you accounted correctly for bookings made prior to 1 April, but which relate to a later period? These can usually be accounted for at the 12.5% rate insofar as payment is received or a VAT invoice raised before 1 April. Ensure you have adjusted your systems to calculate your VAT correctly and get in touch with the friendly CRM experts if you need assistance on 01865 379272.
Making Tax Digital for VAT
If your business is registered for VAT, MTD is compulsory for the first full VAT period beginning on or after 1 April 2022 and for all following VAT periods. Make sure that all the pieces of software you use are digitally linked and are compatible with the MTD portal. If you’re still using spreadsheets and manual records to prepare your VAT return, your systems will need to be updated onto compatible software now.
If you already use digital accounting software, you can check if it’s compatible with the MTD system on this Government website. Some older accounting software may not work with the MTD portal and will need to be updated or replaced.
A new penalty system for late VAT returns and payments that HMRC was going to introduce from April 2022 has been delayed until January 2023 to ensure IT systems are ready. Until the new regime begins, the current default surcharge system applies.
The new system will separate the penalties for late payments and late filing. No penalty for late payments will be applied if the VAT is paid in full within 15 days of the due date or an agreed time to pay scheme. Penalties of 2% and 4% of the VAT amount will be charged between 16 and 30 days overdue and over 30 days respectively.
For late VAT returns, a points system will be introduced where each submission deadline missed will incur one point. A £200 fine is charged when four points are reached for those who file VAT quarterly and five points for those who file monthly. Another £200 fine is charged for each subsequent late submission.
To create a more consistent approach, in the coming years HMRC will use this points-based penalty system for other taxes too.
It’s vital that you register with HMRC for MTD for VAT immediately as it can take some time to iron out any issues. If you need help to make sure your systems are compatible and doing the best job for your business, get in touch with CRM Oxford on 01865 379272.
