Even if it wasn’t for required Brexit changes and the challenges presented by coronavirus, 2021 presents a challenging year from a business administration perspective.
Voluntary VAT registrants in any kind of business may need to change how they administer their VAT records.
Meanwhile, all those using Making Tax Digital (MTD) for VAT may need to adjust their VAT accounting to take into effect the end of certain digital linking provisions.
Here’s a summary of most if not all that you need to know to stay on top of legislation in 2021.
Brexit requirements across 2021
Needless to say, Brexit is where most businesses directed their immediate attention as of 1 January 2021. This was the day when the UK was no longer covered by European Union (EU) laws and regulations and enforced a customs border with EU countries (with the exception of Northern Ireland).
Several government schemes are in place to ease the immediate administrative requirements for businesses.
But there are required changes for exporters too.
The government’s new Border Operating Model introduces further key import/export requirements across the year. 1 April 2021 sees the introduction of additional checks on Sanitary and Phytosanitary (SPS) goods, for example – see section 2.1 of the UK’s Borders Operating Model manual for more details.
There are other Brexit changes too, however, outside of customs and VAT.
For example, for those that employ EU nationals, from 1 July 2021, it’s no longer possible to determine an EU, European Economic Area (EEA) or Swiss citizens’ right to work in the UK using only their passport or ID card. You must instead use the new immigration visa system and you may need to register as a sponsor business.
Coronavirus requirements across 2021
Coronavirus assistance provided by the government continues into 2021, and will probably be the second area after Brexit that businesses will focus on.
Our coronavirus financial support timeline article provides details of what’s required across 2021 and beyond.
For example, the Coronavirus Job Retention Scheme Extended (CJRS) is scheduled to stop covering employee furloughing as of 30 April 2021. It’s not yet known when the final claim date for businesses will be.
Self-employed people making use of the Coronavirus Self-Employment Income Support Scheme (SEISS) should make their first extended period claim by 29 January 2021.
The second extended period claim will need to be made after 1 February 2021, but we don’t yet know when that part of the scheme will open for applications, or when the final application date will be.
The VAT reduced rate for hospitality and tourism scheme is due to end on 31 March 2021 too, as which point standard VAT rates will once again apply.
This could involve adjustments to your accounting and point-of-sale (POS) systems.
Of course, depending on the severity of the ongoing coronavirus disruption, there may be additional measures announced too. We’ll cover them here at Sage Advice.
Making Tax Digital for VAT changes in April 2021
Although the majority of VAT-registered businesses implemented MTD for VAT in 2019, the adaptation journey for some businesses continues into 2021.
This is because mandatory changes due in 2020 were postponed due to the coronavirus outbreak, while new changes for voluntary VAT-registered businesses are necessitated because of HMRC technology changes.
On 1 April 2021, the MTD for VAT “soft landing” period ends.
Put simply, for MTD for VAT-registered businesses, this means it’s no longer legal to cut/copy and paste to select and move information, either within a software program or between software programs.
Although this applies only when the data relates to your VAT record-keeping, or otherwise preparing your VAT Return (however, there are slightly different rules for making input/output adjustments).
Instead of cut/copy and paste, you need to use HMRC-recognised ways of digitally linking the data. Perhaps the simplest is to use MTD-compatible accounting software that takes care of it all for you.
On 8 April 2021 is a potential change for how voluntary-VAT-registered businesses undertake their VAT accounting, although this is not directly related to MTD for VAT requirements.
HMRC is turning off a legacy method that accounting software uses to communicate with HMRC computers in order to file VAT Returns. You should speak to your accountant or accounting software vendor to see if this affects you.
The solution is to either manually complete VAT Returns on the HMRC website, or to upgrade your VAT accounting and the software you use to MTD for VAT’s requirements (and register first for MTD for VAT, of course).
The latter is perhaps the most sensible choice considering MTD for VAT use by voluntary VAT registered businesses is legally required as of April 2022.
Construction Industry Scheme (CIS) changes in March 2021
Those working in the construction industry and who use the Construction Industry Scheme (CIS) need to be aware of the VAT domestic reverse charge for construction services.
Postponed no fewer than two times – in 2019 and then 2020 – because of Brexit and then the coronavirus outbreak, the reverse charge is now due to be implemented as of 1 March 2021.
Put simply, the new rules mean that those supplying construction services, that fall within the scope of the CIS, to a VAT-registered contractor, no longer account for the VAT themselves.
Instead, those employing the subcontractor have to account for the VAT as a reverse charge on their VAT Return (that is, it’s considered input VAT, as if they’ve made the supply to themselves).
This is a big change for both contractors and subcontractors, and could impact subcontractor cash flow because they no longer save the VAT amounts each quarter to use (legitimately) for business purposes until it’s due to be paid to HMRC.
New types of invoices are required, and those who employ subcontractors have significant administrative additional requirements too.
IR35 (contractor) requirements in April 2021
Another measure deferred from 2020, the extension of the IR35 rules to medium and large-sized private companies applies to contractor payments made after 5 April 2021 (although if the contractor’s work with the company ceased before 6 April 2021 then it falls outside the requirements.)
IR35 means medium or large-sized employers that use the services of contractors who work through their own Personal Services Company (PSC) need to determine if the contractors are disguised employees.
Such contractors work for the business in a way that means they are essentially indistinguishable from their payroll employees. They might work 9 to 5 hours at the business, for example, and have their own desk within the office.
If the business determines the individual is a disguised employee then they must pay them Deemed Employer Payment – they must take tax and National Insurance (NI) out of the contractor’s payment.
Small private companies are not covered by the new rules and the responsibility for determining the contractor’s IR35 status and subsequently paying the right tax and NI continues to lie with the contractor.
To help determine the contractor’s employment status, the government offers the Check Employment Status for Tax (CEST) tool. This can be used by both businesses and contractors.
EU VAT e-Commerce Rules in July 2021
The EU VAT e-Commerce Rules introduces several new VAT options and requirements for businesses selling to EU consumers (B2C).
From July 2021, businesses selling services (B2C) that are subject to VAT in the destination country will be able to report and pay the EU VAT via a single EU One-Stop-Shop (OSS) VAT return.
Goods are also affected by the new rules, with distance selling thresholds being abolished meaning all intra-community distance sales will be subject to VAT in the destination country.
Sellers will also be able to report such sales through the OSS VAT return. However, because this only applies to intra-community supplies, businesses in Great Britain (England, Wales and Scotland) will be largely unaffected.
This is because, as of 1 January 2021, they are outside the EU VAT area.
The new OSS avoids the need for businesses to register for VAT in every EU country that they sell to, although that remains an option and using OSS isn’t mandatory.
It’s a replacement for the existing Mini One-Stop-Shop (MOSS) that expands it significantly in scope to more types of supplies and therefore is available to more types of businesses.
UK businesses will use the non-union OSS for supplies made in EU member states.
Also part of the EU VAT e-Commerce Rules is the introduction of the Import One-Stop-Shop (IOSS). This gives sellers the option to charge destination VAT upfront, and subsequently avoid import VAT on B2C imports of goods into the EU with a consignment value of up to €150.
The seller will then report and pay VAT through a single EU IOSS Return (which is similar but separate from the OSS Return, mentioned earlier).
The use of IOSS makes life easier for both seller and buyer, and should expedite the movement of goods across borders.
UK sellers can use the IOSS but will first need to register in an EU state for VAT.
For sales over €150, import VAT will still be due meaning there will continue to be a requirement to register for VAT in the destination country in order to facilitate such sales.
Accompanying the above are two further measures.
Deemed Seller requirements require online marketplaces such as eBay or Amazon selling B2C to collect VAT on many cross-border sales. UK sellers now outside the EU VAT system selling into the EU will then recover their VAT via a process known as the Thirteenth VAT Directive, as detailed in the UK VAT Notice 723A.
Secondly, the IOSS brings with it the removal of Low-Value Consignment Relief (LVCR), which meant imports under €22 didn’t have import VAT applied. This means all EU imports will attract VAT but to ease the process the IOSS system can be used.
General business admin requirements across 2021
Of course, it’s not just the one-off changes, or Brexit and coronavirus-related requirements, that businesses need to concern themselves with across 2021.
Here are the regular deadlines businesses need to be aware of:
Usually, the latest you can send your online Self Assessment tax return is 31 January.
But for the 2019/20 tax year, HMRC has announced that it’s possible to submit it by midnight on 28 February 2021 without incurring a penalty.
You should pay the balance of the 2019/20 tax payment as well as the first payment on account for 2020/21 (if you have to make payments on account for Self Assessment) by 31 January 2021. If you don’t, HMRC will start charging interest on what you owe.
But don’t forget that you can defer any payment due in January 2021 across the months until January 2022 using the enhanced Time To Pay system, which was part of the coronavirus relief measures offered by the government.
Self Assessment second advance payment
31 July 2021 is when you must make your second advance payment (if you have to make payments on account for Self Assessment).
Payroll year end
Around March 2021, start planning for your payroll year end tasks.
All your employees who are working with you on the final day of the tax year, 5 April, need to receive a P60 from you by 31 May.
New tax year
6 April 2021 marks the start of the 2021/2022 tax year, potentially bringing new earnings allowances, or corporation tax allowances.
Listen out for the chancellor’s Spring Budget, which is due to occur on 3 March 2021.
Final thoughts on business legislation for 2021
There have surely been few years in recent times that have brought with them such a long list of administrative and tax requirements.
But reading up on the requirements now, and preparing in advance, can make all the difference when it comes to pushing for a successful 2021.
Editor’s note: This article was first published on 21 January 2021 and has been updated for relevance.
7 ways to take control of your business
Want to know how you can boss it at your business? Read this guide for top tips to help you master your business admin and truly take control.
Recommended Next Read
Making Tax Digital for ITSA: How accountants can prepare sole trader clients
Never miss an episode
Subscribe by email and get Sound Advice delivered to your inbox every two weeks with the Sage Advice newsletter with a ton of related articles, templates and problem solving guides for small businesses so you can put our sound advice into practice.