HMRC has updated its guidance to flag the steps that need to be taken by businesses which benefited from the 20 March 2020 to 30 June 2020 Coronavirus VAT deferral period. Below are the practical points to consider and actions that may need to be taken.
The deferral of VAT payments because of coronavirus ends on 30 June (with no extension offered), and businesses will then need to reinstate their direct debit mandates, where they were cancelled.
VAT returns for May will need to be paid on 7 July, so direct debits may need to be reinstated.
As part of the Coronavirus support measures introduced by the government, UK VAT registered business that have a VAT payment due between 20 March 2020 and 30 June 2020, can defer that payment until 31 March 2021 if they choose to, in order to help their cashflow.
HMRC says it will not charge interest or penalties on any amount deferred.
Businesses that pay their VAT by Direct Debit and want to defer the payment were advised to cancel their Direct Debit, so that HMRC would not automatically collect any VAT due.
Restore direct debits
As we approach 30 June, businesses will need to restore their direct debit mandates in order to be effective in July 2020 onwards.
It will be important to make sure that any VAT returns not yet filed are submitted to HMRC at least three days in advance of the direct debit mandate re-starting.
HMRC has confirmed to the ACCA that it will not collect any deferred VAT when the direct debit mandate is restored. It has apparently made changes to its systems to ensure such an occurrence is avoided.
As regards the need to pay the deferred VAT by 31 March 2021; HMRC is referring taxpayers to its Time to Pay service.
Alternative payment methods
Businesses that pay by an alternative payment method should ensure they make their VAT return payments as normal by any prescribed deadline that arises from 1 July 2020. It would be prudent for such businesses to consider setting up a direct debit. HMRC collect direct debit payments later than the prescribed deadline for other payments, so a cash flow benefit can be achieved.
Beware of the cost of late payments
There is no indication that HMRC will take a lenient approach with default surcharges, the penalties that apply to late VAT return payments, that will arise on late payments for periods that sit outside the Deferment program. Such penalties can be as high as 15% of the VAT bill. Consequently, it is important that businesses pay on time.
Time to pay arrangements
If a business thinks it will be unable to fully pay a VAT return bill it would be sensible to consider engaging with HMRC as soon as possible to negotiate a time to pay arrangement. This involves agreeing to pay specified amounts to HMRC on a periodic basis by direct debit to clear outstanding liabilities. An up-front payment may also be required by HMRC. The benefit of a time to pay arrangement is HMRC will not pursue debt proceedings while an agreement is in place and complied with. Further, a time to pay arrangement usually prevents default surcharges if the agreement is entered into before a debt arises.
Deferred VAT deadlines
Businesses must repay deferred VAT by 31 March 2021. It would be sensible for businesses to budget and plan for how they will repay deferred VAT to reduce the risk of not being able to repay the full amount by the deadline. HMRC is happy for businesses to make additional payments with future returns to cover the deferred VAT.
The above will not impact on businesses that were in a VAT repayment position. However, businesses that have recently changed from making payments to HMRC to receiving VAT repayments from HMRC as a result of a change to trading patterns should consider requesting HMRC change them from submitting quarterly to monthly VAT returns. This will improve cash flow by expediting VAT repayments and increasing VAT the frequency of refunds.
Set off of R&D claims against deferred VAT
HMRC has also confirmed that where VAT payments are deferred as above, any R&D tax credits that are due to be paid to a company by HMRC will not be set against any of those VAT deferrals, at least not before the revised due date of 31 March 2021.
If you wish to discuss your VAT arrangements, please contact a member of our team.
For more help and guidance, do check our refer to our regular Covid-19 Briefing updates.
Or contact us on 01202 880384 or firstname.lastname@example.org