COVID-19: Important update on the VAT payment deferral announcement
Chancellor, Rishi Sunak has announced that businesses can defer their VAT payments due from Friday 20 March up to 30 June 2020.
The government’s COVID-19 guidance explains ‘This is an automatic offer with no applications required. Businesses will not need to make a VAT payment during this period. Taxpayers will be given until the end of the 2020/2021 tax year to pay any liabilities that have accumulated during the deferral period. VAT refunds and reclaims will be paid by the government as normal.’
Their guidance also implies the eligibility might not apply to entities which are not businesses, such as charities and other ‘not for profit’ organisations, many of which may pay HMRC net amounts of VAT on their returns. Although coverage could be intended for more than just businesses, if you are uncertain if this includes you, we advise you check with HMRC as your income and cash flow position may still be impacted by COVID-19.
25th March 2020
Marianne Hawksworth See profile
Whilst the deferral will apply to all UK VAT registered businesses, there will be no need to notify HMRC or make an application to defer any VAT due. However, HMRC will still automatically collect VAT payments by way of direct debits. Please ensure you cancel your direct debit in sufficient time (this usually takes a few working days).
It’s also worth noting that the VAT return must still be submitted on time, regardless of whether payment will be made. It’s also important to note that you must reinstate your direct debit so that any VAT payable after 30 June 2020 onwards is paid on time to HMRC.
If you pay VAT to HMRC by other means, for example by bank transfer or cheque, you should decide whether you wish to do so within the above-mentioned period. The timing of such payments will need careful consideration to ensure any VAT payments due outside of the deferral period are still made in time. Otherwise, the risk being that surcharge penalties may be applied by HMRC for any late payments.
Initially HMRC did not clarify the exact final date when deferred VAT liabilities must be paid to HMRC. They have now confirmed the payments must be paid by or before 31 March 2021.
...HMRC will still automatically collect VAT payments by way of direct debits. Please ensure you cancel your direct debit in sufficient time...
It will cover VAT payments due on VAT returns on or after 20 March 2020, up to and including 30 June 2020. However, many businesses will have a VAT payment due date of either 7 April, 7 May or 7 June 2020 (i.e. for all VAT return periods ending February 2020 to April 2020, inclusive).
If you are direct debit payers, the usual payment dates will be the tenth day of these months due to the concessional payment extension already in existence for payers by direct debit. We await any further announcement from the government nearer to 30 June 2020 that this payment deferral period may be extended.
For larger businesses paying VAT monthly on account, the deferral period will cover four payments for the months of March, April, May and June 2020.
There are a number of other ways you could potentially improve your business’ cash flow around VAT, including (but not limited to) the following:
- Looking at changing VAT period end dates or moving from quarterly to monthly VAT returns (or vice versa)
- Reviewing tax points and VAT accounting procedures i.e. the dates when VAT payable on sales is declared on VAT returns, or when VAT charged on purchases and expenditure can be claimed
- Looking to reclaim VAT on bad debts as soon as possible after the six month eligibility period
- Reviewing the VAT treatment of supplies to identify any which may not be subject to VAT now or going forward (particularly in the international trade, international services and construction sectors)
- Considering the benefits and eligibility of your business to use the cash accounting scheme for VAT (find out more here www.gov.uk/vat-cash-accounting-scheme)
- Considering self-billing arrangements when purchasing to accelerate VAT recovery
- VAT grouping of eligible UK established associated businesses, to enable inter-entity charges to remain VAT-free (n.b. sole traders and partnerships can apply to VAT group with companies they control).
If you’re already struggling to pay VAT, consider an early review of the position and an approach to HMRC, to see what could be negotiated in relation to a manageable time to pay arrangement. Ideally, this should be done well in advance of the due date, particularly before the debt amount and related potential late payment penalties rack up.
If you’re making a non-return related VAT claim (e.g. error correction or DIY housebuilder/house converter scheme claims), we are aware that the waiting time for HMRC to process, agree and pay the VAT may be over 20 weeks. Whilst this may be in an extreme case, all such claims may well be delayed far beyond the normal time period expected, due to increased claim numbers, as well as reduced staffing within HMRC.
For all VAT claims, we recommend following up with HMRC on a regular basis for an update, and particularly if you haven’t received a VAT return repayment within the usual timeframe. We would also advise notifying HMRC in advance of a particularly large VAT claim, or in cases where net VAT claims are not usually made by your business.
If you have any concerns or questions relating to the above, please do contact our expert advisers who are here to help and support you during this unprecedented time.