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VAT considerations for the next few months

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Whilst not necessarily a full solution to current financial challenges, in the coming weeks and months it may be useful to consider some VAT angles that could support a package of measures to improve cashflow. There have also been some key announcements from HMRC that we have considered below.

VAT Deferral

The deferral for VAT payments applies from 20 March 2020 until 30 June 2020. All UK business are eligible and this will generally mean the deferral of one quarter’s VAT: the payment due on 7 April, 7 May or 7 June 2020 or the monthly payments due on each of these dates. HMRC has confirmed that the deferral also applies to payments on account. As set out in our earlier communications, it is important that direct debits are cancelled with your bank.

Time to Pay (“TTP”) Arrangements

Once the VAT deferral period ends, HMRC can be approached for agreement to TTP arrangements, as per the government guidance that has been issued. BHP can assist with preparing these as required, and/or helping where clients are not receiving favourable responses. Click here for more information.

Payments on Account

Some businesses may be required to make instalment payments to HMRC where prior year VAT liabilities exceed £2.3 million.

Given the current year may see a hit in turnover and hence VAT liability, HMRC can be approached to discuss changes to the instalment position and whether these can be removed or amended (again, may be worth waiting for the end of the deferral period). Options also include moving to monthly returns or paying the actual VAT liability due. Should you need assistance there is a specific HMRC team BHP can liaise with on this issue.

VAT Bad Debt Relief

Businesses who haven’t been paid by customers, after 6 months (date runs from later of time payment was due and date of supply), can claim back the  output VAT that they will have previously declared and paid to HMRC.

A cautionary note – this also applies to input VAT, so where VAT has been reclaimed but suppliers not paid, VAT may need to be paid back to HMRC (therefore, the two would need to be assessed on an individual basis).

Cash Accounting Scheme & Flat Rate Scheme

Businesses could review whether  a move to the Cash scheme is appropriate. For those with a turnover of less than £1.35 million, it would allow them to account for VAT based on the cash transaction as opposed to the invoice (hence improving cashflow).

The Flat Rate Scheme may also be worth consideration for smaller traders with turnover less than £150,000. The scheme would allow them to pay a fixed VAT percentage based on turnover, which may be beneficial and less than 20%.

There is also the Annual Accounting Scheme that would provide the option to spread payments over the year, but again, conditions will apply.

VAT Group Registrations

Review whether to implement VAT groups in groups of companies, to reduce VAT payments and specifically VAT on charges between group entities. This will help to manage cashflow. We recommend reviewing your VAT registration position if you are in these circumstances.

Customs Duty

This is not specifically covered by the VAT deferral.

HMRC are aware that in the current circumstances some businesses may be struggling with cash flow, therefore, a dedicated debt management line for agreeing Customs Duty TTP arrangements to pay Duty (and possibly import VAT) over a longer period has been set up. The number for this line is 0300 322 9482.

For those businesses with existing deferment arrangements in place, consider whether these are still appropriate and whether the level and/or guarantee needs to be reviewed.

HMRC COVID response – digital links for Making Tax Digital for VAT deadline extended to 1 April 2021

HMRC has confirmed an extension to the deadline for implementing digital links for MTD for VAT.

We understand that HMRC have recognised that the impact of COVID-19 is creating extremely difficult times for all businesses, and have introduced some changes for MTD, to align with the wider package of support that has been announced over the last week or so. Therefore, HMRC are providing all MTD businesses with more time to put in place digital links between all parts of their functional compatible software. This means that all businesses now have until their first VAT return period starting on or after 1 April 2021 to put digital links in place, and therefore deferring them the cost and admin burden of implementation.

We can assist with this as we progress through 2020, please let us know if you need any clarification at this stage.

Other Areas

In general, it will be important to ensure that you:

  • maximise VAT recovery on all costs;
  • ensure VAT liabilities are assigned correctly; and
  • the general compliance for VAT is maintained while ensuring all relevant current reliefs are obtained where appropriate.

We will keep an eye on further announcements as they are released and will provide updates as necessary.

The BHP VAT team would be happy to provide advice or assistance as needed regarding any of the above matters or any other VAT query.