• Date

    03 Mar 2021
  • Category

    Tax, VAT & Indirect Tax

Budget 2021 | VAT and Customs Duty changes announced

Our VAT and Customs Duty Tax team delve deeper, exploring the key announcements of the 2021 Budget.

VAT and Customs Duty announcements from the 2021 Budget

5% reduced rate extended – “VAT extension welcome but only beneficial when businesses can start to trade”

  • Applies to hospitality and tourism sectors.

  • 5% rate extended until 30 September then interim rate of 12.5% until 31 March 2022.

  • This is good news but it will only be beneficial when businesses start to trade again.

  • A few details still need to be clarified - e.g. Will anti-forestalling rules (on advanced bookings) apply? Are there restrictions on what the reduced rate can be applied to?

  • The main benefit is the VAT saving available for businesses and potentially consumers. Some VAT accounting and system changes may be required.

VAT registration and de-registration thresholds to stay the same until 31 March 2024

  • These limits remain at £85,000 p.a. and £83,000 p.a. respectively.

  • This means that more SMEs will be VAT registered and suffer from a reduction in profit on the first £85k of income together with an increase in administration costs.

UK VAT rates to stay the same

  • The standard of VAT will remain at 20% and reduced rate of VAT will remain at 5%.

  • Current zero rates are unaffected.

  • There are no other rate changes or issues (other than those announced for the hospitality and tourism sectors) to deal with as this stage.

Reminder on deferment of VAT payments – the HMRC portal is now open, action required before 21 June 2021

  • This is a welcome cash-flow boost on top of the original deferral which will allow businesses to defer VAT payments over the next year.

  • This is not a specific Budget announcement however the HMRC portal was activated this week.

  • The portal is now open for applications to defer 2020 VAT payments due by 31 March 2021 until March 2022.

  • Further details can be found at GOV.UK 

  • Applications must be submitted by 21 June 2021 - quicker action will result in additional benefits.

More money for HMRC to investigate fraud and avoidance

  • Fraud and avoidance by businesses is under the Government’s spotlight.

  • This should address what is perceived to be an unfair playing field. Businesses need to focus on their compliance and due diligence responsibilities and the evidence they retain to support transactions and decisions.

All excise duties on alcohol and fuel frozen

  • Duties have been frozen for a second consecutive year.

  • This is helpful for businesses in affected sectors to flourish through COVID and beyond.

  • Post Brexit, any revenue received through duties will now be retained by the UK – this will benefit the UK economy.


  • Eight locations in England have now been confirmed.

  • This is expected to result in infrastructure support, tax reliefs, favourable duty/VAT rates for transactions in the Freeports.

  • There will only be a finite amount of space in the Freeport areas - more clarity and further details are required - there will be pros and cons.

  • It is hoped this will provide a solution to businesses who use the UK as a distribution point for onward supplies of goods.


Want to know more?

Across all areas of Tax, our experts have been commenting on their "first thoughts" of the 2021 Budget announcements. To read more, please use the following links:

Have you been affected by the Budget? 

If you have any queries regarding the Budget 2021 announcements and the impact they may have on your organisation, please get in touch with your usual Azets contact or a member of our VAT & Indirect Taxes team

Watch our webinar

On 4 March 2021, our expert advisors explored the technical issues arising from the 2021 Budget and provided a practical assessment of the key announcements and their impact for both businesses and individuals. As ever with the Budget, the devil was in the detail. Our presenters also highlighted issues the Chancellor may not have made obvious in his address to Parliament.

To watch our webinar recording and download a copy of our slides, click here.

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