The economic climate has completely changed since the last Budget in 2020. The Government has spent £280 billion in supporting individuals’ jobs and businesses through the restrictions imposed as a result of the COVID-19 pandemic. The recently announced roadmap for the lifting of restrictions over the next few months has enabled business to plan for the journey back to normality, or what normality will turn out to be in a post COVID-19 world.

There was limited direct reference to the NHS in yesterday’s Budget speech, which continues to face significant challenges both financially and operationally. The hope is that some of the revenue generated from the future tax rises announced will be used to not only balance Government borrowing, but also help address the situation within the Healthcare market in the short, medium and longer term. 


Although there was no direct mention of the Healthcare sector yesterday, there were a raft of VAT announcements which will both directly and indirectly impact on the sector.

VAT reduction for supplies of catering and sleeping accommodation – The government will extend the temporary reduced rate of 5% VAT for goods and services supplied by the tourism and hospitality sector until 30 September 2021. To help manage the transition back to the standard 20% rate, a 12.5% rate will apply for the subsequent six months until 31 March 2022.

This relief is not restricted to businesses operating in the UK tourism and hospitality sector. The reduced VAT relief applies to supplies of food and non-alcoholic beverages sold for on-premises consumption (e.g. in restaurants and cafes) and hot takeaway food and drinks. This will provide a helpful relief to supplies made by NHS bodies in their own café’s/canteens to encourage visitors to start using their facilities. NHS bodies will of course have to be mindful of the change in VAT rate and may need to make changes to EPoS systems to reflect the change in VAT rates. Our Healthcare VAT team are connected with our wider VAT retail and hospitality teams allowing us to provide helpful insight in order to maximise the relief and practical issues associated with system changes.

The reduced rate relief also applies to supplies of sleeping accommodation in hotels or similar establishments, which may also provide useful relief to NHS bodies who either make or receive taxable supplies of short-term accommodation (less than 28 days).

Relief for certain imported goods relating to COVID-19 – In April 2020, the Government introduced relief for imports of items of medical equipment, COVID-19 testing kits, medicine and PPE for use by state organisations and charities or philanthropic organisations in tackling the pandemic. This relief enabled such goods to be imported from outside the EU free of customs duties and VAT. It was backdated to apply from 30 January 2020, when the World Health Organisation declared COVID-19 a ‘Public Health Emergency of International Concern’ and ended on 31 December 2020. Since 1 January 2021, tariffs on medical products used to help fight against coronavirus have been suspended by the government in the fight against the pandemic, lowering costs on these critical items for organisations across the UK.

From 1 January 2021, NHS bodies will be required to account for import VAT on imported goods relating to COVID-19 (imported from EU and non-EU). Import VAT will be incurred when the goods are either cleared at Customs or accounted for on the Trust’s VAT return if the Trust operates PIVA. The continued relief on tariffs will be welcomed by NHS bodies.

Interest and penalty reform – The government will reform the penalty regime for VAT to make it fairer and more consistent. 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 for VAT taxpayers, from periods starting on or after 1 April 2022.

Other VAT announcements in the 2021 budget and 2020 budget announcements coming into effect from 1 January 2021 include:

VAT on electronic publications – At Budget 2020, the government announced it would legislate to apply a permanent zero rate of VAT to supplies of electronic publications from 1 December 2020 to support literacy and reading in all its forms. Following the outbreak of COVID-19 and to help reduce the cost of access to electronic publications when many people have been confined to their homes and schools closed.

We are working with NHS bodies to explore opportunities for retrospective claims to be stood behind the ongoing VAT case in News Corp UK & Ireland Ltd.

VAT Deferral Payment Scheme – Any business that took advantage of the original VAT deferral on VAT returns from 20 March through to the end of June 2020 can now opt to use the VAT Deferral New Payment Scheme to pay that deferred VAT in up to eleven equal payments from March 2021, rather than one larger payment due by 31 March 2021, as originally announced. It was also announced that a new penalty would be introduced of 5% of the amount of deferred VAT that is outstanding if businesses have not paid in full, opted into the New Payment Scheme or made alternative arrangement to pay by 30 June 2021. 

This unlikely to be of benefit to the NHS but may be relevant for any NHS subsidiaries or private healthcare operators who deferred VAT payments due up to 30 June 2020.

VAT postponed accounting (PIVA) – From 1 January 2021 postponed accounting for VAT will apply to all imports of goods, including from the EU. This will provide an important boost to those VAT registered UK businesses which are integrated in international supply chains as they adapt to the UK’s position as an independent trading nation. This will be a welcome reprieve for businesses currently paying the import VAT at the time of import (i.e. not currently enjoying deferment).  This will mean for example NHS bodies importing medical equipment or drugs, will be delaying the VAT payable on the import until the relevant VAT return.

We are aware currently supporting NHS bodies who are experiencing issues with using PIVA, which has resulted in additional charges being incurred from Customs Agents.

VAT on women’s sanitary products – From 1 January 2021 the government will use freedom from EU law to enable a zero rate of VAT to be charged on women’s sanitary products.

Corporation Tax

There were several announcements in the budget relating to corporation tax. These announcements will not directly affect NHS Trusts, who are exempt from corporation tax, but will have an impact on corporate NHS subsidiaries and corporate private healthcare operators:

  • Loss carry-back - Businesses will be able to benefit from the ability to carry back over a three-year period, £2million of losses arising during each of the 2020/21 and 2021/22 tax years.
  • Enhanced capital allowances - Companies will benefit from a first-year capital allowance of 130% on plant and machinery acquired between 1 April 2021 and 31 March 2023, with a new 50%  first year allowance on qualifying special rate assets (excluding operating leases, second-hand assets and cars). This was announced by the Chancellor as a ‘super deduction’ for investment. The annual investment allowance of £1 million for business will also remain until 31 December 2021.
  • Increase in the corporation tax rate - Corporation tax is due to increase to 25% from 1 April 2023. A small profits tax rate of 19% will be reintroduced, but at a lower level of £50,000 of profits with the corporation tax rate tapering back up to 25% for profits of £250,000. 

Employment Tax

As was widely trailed, the main announcement was the extension of the Coronavirus Job Retention Scheme (CJRS) with a phased reduction in financial support from the start of July although the restriction on its use by public bodies means this will have a limited impact on the sector.

From an employer’s perspective, the other main announcements concerned:

  • Benefits in kind and expenses – Temporary income tax and NIC easements for certain COVID-19 related benefits in kind and employer reimbursed expenses extended to 2021/22.
  • Off-payroll working – implementation of the reforms from 6 April 2021 was confirmed, with a change to better target the definition of a worker’s ‘intermediary’ to prevent abuse, and other minor changes;
  • The pension lifetime allowance – this will be frozen between 2021/22 – 2025/26; and
  • Income tax and NIC – previously announced increases to bands and thresholds from 6 April 2021 were confirmed, but the personal allowance and higher rate threshold will then remain frozen until April 2026. 

How can I find out more?

Further details and commentary will appear on our Employers’ Club website.  You can subscribe to People & HR Insights via our preference centre to keep up to date.

If you would like to discuss any of these points, please do not hesitate to contact your usual KPMG contact, or one of the following:       

Corporate Tax:         

Simon Robinson          (0782 5682 425)

Joanne Kitwood           (0776 9750 858)


Steve Brooks              (0207 896 4295/ 07957 228 941)

Arran Thoma              (0161 246 4596 / 0779 9726 142) 

Andy Pick                    (0117 905 4462 / 0792 108 7756

Employment Tax:     

Paul Moreels                (0191 401 3703)

Anne-Marie Boden      (0207 694 2626 / 07917 403 625)