Farms and Estates update: VAT and other tax changes ahead

Published: Wednesday 16 February 2022

Our Summer 2021 Focus included an article on furnished holiday lettings and the reduced rate VAT benefits. Time is running out on the reduced rate of VAT, in addition there are additional changes to VAT and tax reporting to be aware of.

VAT changes

  1. Temporary reduced VAT rate on hospitality and holiday accommodation – 1 April 2022

The reduced rate of 12.5% on hospitality and holiday accommodation is due to revert to the standard rate of 20% on 1 April 2022. There is still an opportunity for furnished holiday let owners to apply the reduced rate on holidays up to 31 March 2021 and also on deposits and bookings paid for by this date. Perhaps one last push to help cashflow and offer early payment discounts?

Wedding venues, farm shop cafes and other hospitality businesses will need to make a diary note to reprogram the tills and invoicing systems to make this change to any applicable catering supplies.

  1. Making VAT digital (MVD) – April 2022

Most businesses with taxable turnover of over £85,000 have been registered for MVD since April 2019. This will become mandatory for all businesses registered for VAT with effect from VAT periods starting after 1 April 2022. If you are relying on the exemption for small business where your turnover is below £85,000, you will either need to start filing VAT returns digitally or qualify for one of the other exemptions. The exemptions which will continue to apply from April 2022 are:

  • it is not practical for you to use digital tools to keep your business records or submit your VAT returns – this may be due to reasons such as age, disability or location
  • you (or your business) are subject to an insolvency procedure
  • your business is run entirely by practising members of a religious society (or order) whose beliefs are incompatible with using electronic communications or keeping electronic records

If you are currently trading below the VAT threshold you should review your VAT position, it might be that de-registering is the best option for you. If remaining VAT registered is important to your business, then now is the time to take advice on the best MVD software for you.

Income tax changes

  1. Making Tax Digital (MTD) - 6 April 2024 (delayed from 6 April 2023)

Self-employed businesses and landlords with annual business or property income above £10,000 will need to follow the rules for MTD for income tax from 6 April 2024. This will require five reports to be submitted through the year – four quarterly reports and an end of period declaration. The timing of tax payments will remain unchanged. This is a seismic change to the existing annual self-assessment format that has been in place since 1996.

Although this change is over two years away, time will flash by. The change will have the greatest impact on the very small businesses and landlords with a small property portfolio who currently keep manual records. However, larger businesses that are not required to be registered for VAT because their supplies are exempt for VAT will also be caught.

There are various, easy to use software packages available on the market, Xero and Quickbooks to name just two. If the MTD requirements affect you, plan ahead to make sure you can meet your obligations.

There is a time delay for companies, HMRC has stated MTD for corporation tax will not be introduced before 2026.

If you need help setting up a digitally compliant system of have any other queries do get in touch.