Summarising key changes around VAT.
Second-hand margin scheme: interim arrangement for Northern Ireland
The government will legislate, should a relevant agreement be reached with the EU, to extend the VAT margin scheme to apply in Northern Ireland on a limited basis in respect of motor vehicles sourced from Great Britain for the period until the Second-hand Motor Vehicle Export Refund Scheme is implemented. As a result, motor vehicles first registered in the United Kingdom prior to 1 January 2021 will be available to sell under the VAT margin scheme in Northern Ireland during that time period. Once approved, it will apply retrospectively from 1 January 2021.
Second-hand motor vehicle export refund scheme
The government will legislate to be able to introduce a Second-Hand Motor Vehicle Export Refund Scheme. Under such a scheme, businesses that remove used motor vehicles from Great Britain for resale in Northern Ireland or the EU may be able to claim a refund of VAT following export. This will ensure that Northern Ireland motor vehicle dealers will remain in a comparable position to those applying the VAT margin scheme elsewhere in the UK.
Exemption for dental prostheses imports
The government will extend the current VAT exemption for dental prostheses supplied by registered dentists and other dental care professionals or dental technicians to imports of dental prostheses by these persons. This will ensure the VAT treatment for such prostheses supplied into and within the United Kingdom, including between Great Britain and Northern Ireland, is consistent. This measure will take effect on or after the date of Royal Assent of Finance Bill 2021 and will apply retrospectively from 1 January 2021.
No further changes for hospitality sector, holiday accommodation
To support the most vulnerable businesses hit by the pandemic, last year VAT rates were cut to 5% for hospitality sector, holiday accommodation and attractions until 30 September 2021. After this date, the VAT rate is increased to 12.5% to 31 March 2022, before reverting to the standard rate of VAT of 20%.
More VAT guidance on these industries can be found here.
New point-based regime for penalties for VAT and Income tax
As announced in March 2021, 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 on:
- 1 April 2022 for VAT taxpayers from periods starting on or after 1 April 2022
- 6 April 2024 for those taxpayers required to submit digital quarterly updates through MTD
- 6 April 2025 for all other ITSA taxpayers.