Value Added Tax and indirect taxes

Thresholds

The standard rate of VAT remains at 20%. For a table of the main tax rates and allowances for 2021/2022, click here.

A temporary reduced rate of 5% applies to certain supplies of hospitality, hotel and holiday accommodation and admissions to certain attractions from 15 July 2020 to 31 March 2021. The Chancellor announced in Budget 2021 that this reduced rate would be extended until 30 September 2021. From that point, a 12.5% rate will apply for a further six months until 31 March 2022.

The VAT registration and deregistration thresholds will remain at £85,000 and £83,000 respectively from April 2021. In particular, the government previously announced that, on the basis of the recommendations of the Office of Tax Simplification (OTS) concerning the distortions created by the high registration threshold in the UK, the registration threshold would be frozen until April 2022 pending further consideration of the issue. The Chancellor has now announced that these thresholds will now be frozen for a further two years until April 2024.

Extension of Making Tax Digital for VAT

HMRC are continuing with the roll-out of Making Tax Digital (MTD) extending these provisions for all VAT registered businesses for their first VAT period on or after 1 April 2022 with respect to maintaining digital records and providing VAT return information through Making Tax Digital software.

This will extend the measures to many businesses which may previously have not been required to comply with MTD.

Legislating for the VAT deferral new payment scheme

The government is legislating the commitment previously announced by the Chancellor on 24 September 2020 that businesses which had deferred their VAT payments until 31 March 2021 could split their repayment into 11 smaller interest-free instalments.

As part of this, the government is introducing the "New Payment Scheme" which enables businesses to pay the deferred VAT by instalments using a direct debit.

A penalty of 5% has been announced for any business which has not paid in full, opted into the New Payment Scheme or made alternative arrangements by 30 June 2021. The standard Default Surcharge regime will not apply in respect of this VAT payment. 

The earlier businesses enter the scheme, the more payments by instalments can be made. Reviewing the current position proactively is therefore important.

Landfill tax (LFT)

There were no announcements in respect of Landfill Tax in Budget 2021 as the annual increases in the standard and lower rates of Landfill Tax were set out in Budget 2014 to be line with inflation (based on Retail Prices Index (RPI)) rounded to the nearest 5p. From 1 April 2021, the new standard rate will be £96.70 per tonne and the lower rate £3.10 per tonne.

Climate change levy (CCL)

There were no announcements in respect of CCL in Budget 2021. In Budget 2020 the government set the rate of CCL for both 2020/21 and 2021/22 which reflect the government's commitment to rebalance the main rates paid for gas and electricity.

 From 1 April 2021 the gas rate will increase so it reaches 60% of the electricity main rate. Other fuels, such as coal, will continue to align with the gas rate. The discount for sectors with Climate Change Agreements will change to reflect the change in CCL main rates.

Carbon Price Support (CPS)

The government announced that they intend to maintain the freeze on Carbon Price Support rates at £18 per tonne of carbon dioxide in 2022/23. The government also announced that it 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. This follows the government’s announcement that the UK Emissions Trading System rather than the Carbon Emissions Tax would be the UK’s carbon pricing policy from 1 January 2021. The government response to a consultation in summer 2020 on the tax is being published on 23 March 2021. The government will introduce legislation in Finance Bill 2021 to repeal the provisions relating to the Carbon Emissions Tax, which were not commenced.

Aggregates levy

The government announced that it will continue to freeze the rate of the aggregates levy for 2021/22 at £2/tonne but intends to return to index-linking in the future.

Plastic packaging tax

Following an additional consultation in 2020, the government has confirmed that it will introduce new legislation in Finance Bill 2021 to establish a plastic packaging tax (PPT) in order to address concerns with plastic packaging and waste.

From 01 April 2022, the PPT will apply to plastic packaging (ie packaging that is predominately plastic by weight) containing less than 30% recycled plastic at a rate of £200 per metric tonne of plastic packaging, in circumstances where such packaging is manufactured in, or imported into, the UK.

The PPT will apply to UK manufacturers who produce finished plastic packaging components or UK companies that import finished plastic packaging. If imported, plastic packaging will be liable to PPT regardless of whether such packaging is filled or unfilled. However, producers and importers of small amounts of plastic packaging (ie those which manufacture or import into the UK less than 10 tonnes of plastic packaging per annum) will be exempt from liability to the tax and, therefore, will not be required to register for the PPT.

The legislation is set to be published in Finance Bill 2021 and will go into further detail on: (i) the exact scope of the tax by reference to the type of taxable product and recycled content; (ii) who will be liable to pay the tax and, as a result, be required to register with HMRC; (iii) how HMRC will collect, recover and enforce the tax; and (iv) how the tax will be relieved on exports.

The PPT is intended to "tackle the scourge of plastic waste" and should deter businesses from manufacturing plastic packaging with non-recycled plastic. It is hoped that this will, in turn, create a higher demand for recycled plastic and result in increased levels of recycling of plastic waste.

This measure is expected to affect around 20,000 manufacturers and importers of plastic packaging in the UK. The overall impact on affected businesses will be significant and they will need to think about the one-off costs associated with familiarisation with the rules, training of staff, HMRC registration requirements and developing an internal reporting framework to complete the necessary tax returns alongside any continuing costs. Consumers will not be impacted by the PPT unless businesses pass on the tax charge (albeit this will be small as plastic packaging only constitutes a small fraction of the total cost of goods).

There will be both civil and criminal penalties for failing to comply with the tax, including penalties for failure to register with HMRC, file the relevant returns or failure to pay the tax.