Starting with some good VAT news!
As announced in the Spring Budget last month, the Chancellor has extended the reduced temporary VAT rate for the hospitality sector. Originally due to end on 31st March 2021, however in order to continue support for businesses in the hospitality and tourism industry during the ongoing coronavirus pandemic, the reduced rate of 5% will remain applicable until 30th September 2021.
Following this, the Government has announced that a new rate of 12.5% will apply from 1st October 2021 for a further 6 months relevant to specific supplies, allowing a phased return to the 20% VAT rate from 1st April 2022. For further information on the reduced rate Spring Budget announcement, please see Gov.uk here.
Making Tax Digital (MTD) – the final countdown
There has been a phased roll out by HMRC for businesses to comply with the MTD requirements since April 2019, whereby companies with an annual turnover above the VAT threshold (£85k) have needed to submit their accounting information digitally every quarter using compatible software.
However, from 1st April 2022, all VAT registered businesses (regardless of turnover) will be required to submit their VAT returns using MTD compatible software and to keep digital records, from the first VAT period occurring after 1st April 2022.
How do I get prepared for MTD?
At LWA we highly recommend our clients to upgrade your bookkeeping software to include Sage (version 24c or 25c) or ideally Xero, to be ready for you to submit your VAT returns before 1st April 2022. Due to the growing popularity, there are plenty of good quality, time-saving and easy-to-use bookkeeping software systems at a relatively low-cost. At LWA, we are Gold Accredited Xero Partners which means we can help you get set up and benefitting from the wonderful tools and reports available from the software. The ideal time to change to Xero would be at your year-end or at the end of a VAT period.
Can spreadsheet users comply with MTD?
HMRC will not be providing additional software for spreadsheet users so bridging software with MTD APIs will need to be bought if you are currently a spreadsheet user. At LWA we do not recommend this as it will be extremely time-consuming for you.
Avoid penalty points!
HMRC’s reform of the current penalty system relating to late submission of VAT returns and late payment of VAT liabilities has been talked about for a few years which would replace the automatic financial charges currently applied with a points-based system.
It has now been confirmed that the new penalty points system will become effective on 1st April 2022, with points will be accrued depending on the mistake committed or payment missed, and on cumulation of a points threshold, a financial penalty of £200 will be charged to taxpayers who fail to meet their obligations in either of these areas. The varying point thresholds will depend on the frequency of submission of VAT returns – for example for traders submitting returns on an annual basis, will accrue 2 points and will incur a penalty, whereas for quarterly submissions the threshold will be set at 4 points.
The intention is that the points-based system will mainly affect VAT registered traders who miss deadlines and make errors on a regular basis, rather than those who default occasionally.
For a full breakdown of how the new VAT penalty points system will work, visit Gov.uk here.
Should you wish to know more about MTD or need assistance with compliance, or if you’re looking to upgrade your bookkeeping software, then please get in touch with our Accounts Manager, Amy Daniels, or Audit Manager, Matt Jones – click here to see their direct contact details on our Meet the Team website page.