On 20 March 2020, HMRC announced a deferral scheme for VAT for all UK businesses to help them manage the impact of COVID-19. This also now applies to businesses that are not established in the UK but are registered for VAT here.
Important updates to VAT deferral
The VAT deferral concession announced by HMRC in March ends on 30th June 2020.
If direct debits have been cancelled please ensure that they are reinstated so that any payments due after 30 June are made on time. While we hope that HMRC will apply a light touch with regard to late payments that are due in July onwards this cannot be guaranteed. Taxpayers that are late either submitting VAT returns or making full payment are captured by the default surcharge regime. This can lead to 15% surcharge on the amount of VAT due where VAT return submissions or payments are habitually late.
Direct debits should be set up in time to meet the VAT liability of:
- VAT returns for the period May 2020 onwards
- Payments on account due on 1 July onwards
- Annual accounting payments due on 1 July onwards
VAT deferral details
VAT payments will be deferred for three months beginning on 20 March and ending 30 June. For those on standard quarterly VAT returns, the returns affected will be –
- February 2020, due on 7 April
- March 2020, due on 7 May
- April 2020, due on 7 June
Therefore, the deferral will not apply to the next set of returns being –
- May 2020, due on 7 July
- June 2020, due on 7 August
- July 2020, due on 7 September
VAT returns will need to be submitted but any VAT due will not be payable until the end of the financial year - 31 March 2021.
Other returns and payments affected
- Large businesses that have payments on account that span the dates 20 March to 30 June
- Annual accounting payments within this period
- VAT returns that have non-standard tax periods that span the dates 20 March to 30 June
Businesses that receive repayments of VAT will not be affected as VAT refunds will continue to be made It is likely that these refunds may be slower than normal, particularly if the repayment is higher than normal.
Those businesses that submit MOSS returns are also not affected and must pay their VAT liability.
Comment from Richard Staunton, VAT Partner at Gerald Edelman
“This is a very welcome response. VAT collected at the beginning of the year can now be used to help cashflow. It has also been confirmed that HMRC will not charge interest or penalties on any amount deferred, which means this measure is effectively an interest free loan for around 12 months.
The fact that overseas businesses will not benefit adds a level of complexity which is not ideal. If you are eligible, I recommend that you contact HMRC who are likely to be sympathetic.”
Calculating what is owed
While the deferring of payments for VAT returns is welcome, what happens if a business is unable to calculate what it owes to be able to submit the return during the period in question? In theory, even though payment is not due, a business will still be in default if the return is not submitted on time.
This could lead to a surcharge depending upon your filing history. If you are unable to complete your VAT return because of lack of staff or systems directly because of the pandemic this could count as a reasonable excuse and would mean the default is waivered. We would recommend contacting HMRC as soon as possible to discuss this with HMRC.
An alternative is the request permission to estimate the VAT return. We expect HMRC to be reasonable during this difficult time but it is still prudent to take steps to protect your position.
New error correction address
Before the pandemic there had been a large delay in the processing of voluntary disclosures. HMRC has now issued new contact details for error correction and it could be that while they have suspended compliance checks they may instead concentrate on clearing the back log. The new email address is: firstname.lastname@example.org.
The delay is likely to cost the exchequer some £30 billion in deferred revenue. When considering other measures taken this is quite low, which means the deferral could be extended by a further three months.
At present, it is assumed that only payments relating to VAT returns are included. That means any obligations or agreements relating to VAT assessments or other bills, or older VAT returns either not filed or filed but not paid, must be adhered to. In reality, we expect HMRC to be reasonable and indeed more patient that normal.
It is advisable to contact the Time to Pay hotline on 0800 0159 559. This number has been set up by HMRC to supported businesses and the self-employed.
Returns should be submitted using the MTD rules. However, if this is impossible because of lack of staff and/or infrastructure, HMRC should be contacted.
Most businesses pay their returns by direct debit. These direct debits must be cancelled immediately to ensure that payments are not collected. This is in line with HMRC advice. However, businesses need to ensure that they are reinstated with plenty of time before the next payment is due, i.e. after 30 June.
It is likely that VAT will be used as a tool for stimulating demand when the current Coronavirus emergency passes. Businesses should therefore be prepared for a cut in the standard rate of VAT to 15% at some point in the future.
The VAT team at Gerald Edelman will be constantly monitoring any changes to the VAT system and will be advising clients either through the normal channels or on this website. If you have any questions, please speak to your normal contact or email VAT@geraldedelmen.com.Back to top