VAT payments deferred until after 30 June (and other VAT cash flow ideas)

VAT payments deferred until after 30 June (and other VAT cash flow ideas)
VAT payments deferred until after 30 June (and other VAT cash flow ideas)

In perhaps one of the first times a delay has been good news, the Chancellor announced that VAT payments due between 20 March and 30 June will be deferred. Businesses will have until the end of the 20/21 tax year to settle liabilities from this period, giving a useful cash flow benefit. At the moment, there is very little detail on this from HMRC, and lots of speculation from everyone else. So, I will continue to update this. I hope the comments below help you manage your VAT cash flow effectively through this very unusual time we find ourselves in!

VAT payment returns

This deferment will apply to all UK businesses, and will be automatic. There is no need to apply for this. Direct debits will not be cancelled automatically by HMRC so for those of you who do pay by direct debit, I would advise that these are cancelled as soon as possible for this quarter.

We expect the deferment period to apply to VAT payments which are due between now and 30 June. This will include those of you who submit returns for quarters/months/years ending February, March and April, and presumably import VAT qualifying under the deferment rules up to the month ending 31 May. It will also include payments on account, balancing payments and annual accounting installments due for payment over this period.

It will NOT cover MOSS payments.

Businesses will then have until the end of the 2020/21 tax year to pay VAT incurred throughout this period to 30 June. We expect this to mean that businesses would pay back throughout this year as and when they are able to, rather than having to make set installments, such that the full amount could be paid back on the last day of the tax year if you'd prefer (although I think "prefer" is a strong word here!). HMRC will not charge interest or penalties for these deferred payments.

VAT returns are still expected to be submitted as normal. Please get these in to avoid any penalties later down the line.

At present, the latest VAT return this will cover will be returns for the period ending April (due June 7). Depending on how things progress with the Coronavirus, it may be that this deferment period is extended in due course. (We of course really hope that things will be starting to pick up for all of us well in advance of this such that this will not be necessary though!).

VAT payments deferred until after 30 June (and other VAT cash flow ideas)

VAT repayment returns and other refunds

VAT repayment returns will still be paid by HMRC as normal. My advice to those of you who expect a repayment return is to get these in as soon as you can. The earliest date is the day following the end of a return period (so for a quarter ending 31 March, you can submit on 1 April if you are ready).

TOMS annual adjustments can sometimes mean that a VAT return becomes a repayment return especially where there is very sadly a lack of sales in the quarter. I would therefore suggest that any TOMS annual adjustments due are calculated before the earliest relevant return is submitted, to see if this is the case. TOMS calculations are normally included on the return following year end (so for a 31 March year end, the annual adjustment would normally be included on the June return). However it can also be included on the year end return (i.e. the March return for a 31 March year end) if the information is ready and the calculation complete, and you wish to do so.

I would also like to mention backdated VAT refunds. These will still be reviewed and processed by HMRC over this time. Where an opportunity for a repayment exists, my advice would be to look into these as and when you have the capacity to do so. Any possible VAT overpayments you have made in the past, now is definitely the time to look into these!

VAT payments deferred until after 30 June (and other VAT cash flow ideas)

Non UK businesses

HMRC's brief message states that the deferment applies to UK businesses, which unfortunately suggests that this will not be extended to non UK businesses (businesses not established in the UK). This still needs to be confirmed by HMRC though so this will also be updated as and when we hear.

Please remember though that HMRC have ongoing facilities for Time To Pay arrangements and have set up a dedicated team to deal with VAT (and other tax) payment deferments as a result of Coronavirus business interruptions. If the deferment announced does not apply to non UK businesses, these Time To Pay arrangements should be considered.

Many non UK businesses registered for VAT in the UK are in repayment positions for most returns. These returns will still be paid so, as above, please ensure that these are submitted ASAP!

VAT payments deferred until after 30 June (and other VAT cash flow ideas)

What can you do now to help your VAT position?

  • Consider all the points above - whether you are a UK or non UK business, and in a payment or repayment position, there is some way for everyone to use their VAT position to help with cash flow at the moment.
  • Any businesses using the TOMS rules, ensure that your calculation is optimised. TOMS is one area where we see lots of businesses overpay due to the complexities of the rules, and now is definitely a time to ensure that you are not parting with any cash unnecessarily.
  • Those operating a TOMS transport company and making management charges may receive a cash flow benefit if their management charge invoice is due to be included on the February, March or April returns. Speak to me about this if you are in a position to include your management charge on the March or April return.
  • Ensure that any possible VAT refund opportunities are explored as and when you have the time and capacity to do so. I will be sending out some common areas to look at later this week.
  • For those of you who are required to make payments on account, you may wish to consider writing to HMRC and requesting a payment reduction for the months ahead. I have it on good authority that this was accepted by HMRC in some circumstances in the 2008 financial crash, so there is a good chance HMRC will permit this.

We are always very happy to help you with VAT. If we can do anything to assist you please call us on 07971 642789.

Stay safe people!