COVID-19: Help For Businesses Managing VAT Through The Crisis
Here's a summary of some of the initiatives to help businesses managing VAT through COVID-19.
Dated: 3 April 2020 Author: Terri Bruce, Director Indirect Tax: SMEs and Not for Profit
The Covid-19 pandemic has created a completely new working environment and businesses are having to operate in new and inventive ways every day. It is clear that when we emerge from the current lockdown the economic environment will be a different place. Therefore it is important to have strategies in place to ensure that a business will be in the best possible position to be able to move forwards.
HMRC has announced a number of initiatives to help businesses manage VAT as it can be one of, if not the largest, tax flows in the business.These are outlined below:
HMRC has set up a dedicated helpline to help businesses which cannot pay their taxes - 0800 0159 559. Whilst they have deployed staff to deal with enquiries wait times can be quite long but other information is available on line and is updated regularly
We have reproduced some of the most important information concerning VAT below:
VAT returns due to be submitted between 20 March and 30 June (i.e. quarterly returns for the period ending February, March and April 2020) will still need to be submitted as normal. This may cause logistical issues if key individuals are working from home, so it is important to consider whether the VAT return can be prepared and submitted remotely, particularly if specialised MTD software is being used.
Whilst VAT returns should be submitted, HMRC has confirmed that payment of any VAT liability for these returns will deferred until the end of the tax year 2020/21. It is not clear whether this means the income tax year which ends 5 April 2021 or the VAT tax year (ending 31 March, 30 April or 31 May 2021, depending on your VAT return periods).
HMRC has announced that it will not collect any VAT due until the end of June 2020.
This should be an automatic process, however, to avoid any accidental payments being made businesses are advised to cancel any direct debits for the time being.
Payments on account due between 20 March and end of June can also be deferred as will annual payments (for businesses on annual accounting) due between 20 March and end of June.
HMRC will continue to pay VAT refunds and reclaims as normal for eligible claims. HMRC has confirmed that no interest will be charged on payments deferred.
Businesses which find that they will require longer term VAT deferrals can submit time to pay applications to HMRC. Anecdotally we can report that HMRC is currently being sympathetic to requests from businesses for extended time to pay.
This may also be a good time to look at cash flow within the business. As businesses effectively collect VAT for HMRC, large sums of money pass through their bank accounts before being paid over to HMRC. If a business is able to optimise this VAT-flow it can make a real difference to the overall position.
There are some simple (and not so simple) changes a business can make and questions it can ask to improve cash-flow or mitigate a VAT cost:
- Changing VAT periods - Is the current VAT stagger appropriate or does the business end up paying VAT over earlier that it needs? For example, a retailer whose peak time is Christmas would be well advised to have VAT periods which end in November and February so that it can recover VAT on stock-build up in November and defer paying VAT on Christmas and January sales until April.
- If you are a repayment trader, should you be on monthly returns? Can you submit your VAT return more quickly and thus speed up repayments?
- If a business is on payments on account it may be possible to reduce the amount payable if it is believed that the current Covid-19 pandemic will alter future trading conditions.
- Are invoices raised at the optimal time to take defer the point at which VAT becomes accountable for to HMRC?
- Is it feasible to issues requests for payment? Or can you sell on a sale or return basis?
- Are there any bad debts where bad debt relief can be claimed?
- Does the business operate an input tax accrual?
- Are there any government schemes like cash or annual accounting that could help part of the business or group?
- If a business is part of a corporate group, are there benefits to be achieved by either creating or disbanding a VAT group?
As businesses are required to comply with MTD, it may find that the accounting systems used have increased functionality and can help with checking for VAT leakage within the system. For example, is a business recovering all the input tax it is entitled to?
When was the last time that VAT liabilities of sales were checked? VAT constantly changes and case-law often creates opportunities for claims. For example, the recent Upper Tribunal decision in the News Corp case determined that digital publications should be zero-rated. This could create opportunities for businesses to claim historic refunds of VAT.
Businesses should regularly review their partial exemption methods to ensure that they continue to produce a fair and reasonable result. Improved VAT recoveries can be achieved by applying for special partial exemption methods or reviewing non-business apportionments. Even easier, businesses can review direct attribution and ensure that VAT recovery is optimised.
Obviously, not all of the above will be suitable or beneficial to all businesses but sometimes little tweaks can have a significant impact.
If you would like to discuss your concerns about your VAT position or if you are interested in any of the above, please contact:
We have a cash-flow questionnaire we can run through with you and may be able to identify some easy wins.
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