On Friday 20 March, the Chancellor announced that the Government is to support businesses by deferring VAT payments due, under the usual VAT return rules, until the end of June this year. While there was speculation that this scheme would be extended HMRC has now confirmed that there will be no extension; any organisations that have taken advantage of this deferral should ensure that they review their VAT payment arrangements as direct debits may have been cancelled to take advantage of this scheme – these must be reinstated (or alternative arrangements made) to ensure there is no default on the next payment due.
This was followed by a statement on the gov.uk website which confirmed the following key points.
- The deferral will apply from 20 March 2020 until 30 June 2020.
- All UK VAT registered businesses are eligible (but it does not cover VAT payments due if you are paying under the Mini-One-Stop-Shop scheme).
- This is an automatic offer with no applications required. Businesses will not need to make a VAT payment during this period.
- Taxpayers can choose to settle this liability in full before 31 March 2021 or alternatively the liability may be settled in 11 (interest free) payments made in the 2021/22 financial year.
- HMRC has provided specific guidance for payment-on-account businesses taking advantage of the scheme and in particular where the balancing payment falls outside of the deferral window.
- HMRC will not charge interest or penalties on any amount deferred.
- VAT refunds and reclaims will be paid by the government as normal.
There are two key matters that VAT registered organisations should not forget. First, VAT returns must still be submitted on time. Second, VAT-registered organisations that pay by direct debit will need to cancel these immediately to prevent the money being paid to HMRC automatically. HMRC is not able to cancel the direct debits itself. However, care should be taken by those businesses operating an import VAT and duty deferment accounts via direct debit as cancellation of the direct debit for these organisations may lead to a default. While this is a very welcome development, and a little more information has been made available since the Chancellor’s speech, many questions remain unanswered. In recognition of the pressures facing businesses in this time, we have also heard that HMRC has confirmed that the Making Tax Digital requirements to introduce digital links will be postponed until periods beginning on or after 1 April 2021 (whether that business is regarded as complex or not).
In the current environment, cashflow savings may be more valuable than ever despite the government’s measures. Here are some ideas for how you can reorder your VAT strategy to optimise cash flow:
1. Monthly VAT returns – businesses that claim regular VAT repayments from HMRC should change from quarterly to monthly VAT returns if they have not already done so. Monthly returns should be submitted as soon as possible after the end of the month to encourage HMRC to process the refund quickly.
2. Input tax accruals – identify purchase invoices that are dated within the current VAT accounting period but are not entered into the accounts until after they have been closed off for the quarter. The recoverable VAT should then be added to the input tax on the current VAT return for that VAT period, rather than waiting until the next return. This is a one-off cash flow saving – it must then be adjusted in subsequent periods.
3. Consider submitting claims for refunds of VAT paid overseas (or paid in the UK by overseas businesses) now rather than waiting for the deadlines (30 September for EU VAT refund claims or 31 December for 13th Directive refunds).
4. Landlords asked by commercial tenants to delay rental payments or request rent free periods should consider deferring the issue of the invoice or issuing a payment request/pro-forma invoice instead, which does not create a tax point for VAT purposes.
5. Tour operators should consider using Method 1 to determine their tax point under the Tour Operators Margin Scheme (TOMS). Under Method 1, the tax point for VAT purposes is the date on which the 'traveller departs', rather than the date of receipt of payment. HMRC also accepts that, in the event of a cancellation, there is no tax point for the supply under Method 1, so VAT does not have to be accounted for on retained deposits.
Across Europe many organisations are also introducing temporary VAT reliefs. Find out more.
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