COVID-19 – VAT Deferment

Jason Croke our VAT Director explains some of the points to note regarding last Friday’s announcements about the deferment of VAT as a measure to support business throughout the COVID-19 crisis.

As part of the governments actions to protect businesses during the COVID-19 crisis, government has indicated that VAT liabilities due between now and end of June can be deferred until end of March 2021.  HMRC’s wording is copied below:

“For VAT, the deferral will apply from 20 March 2020 until 30 June 2020.  All UK businesses are eligible.  This is an automatic offer with no applications required. Businesses will not need to make a VAT payment during this period. Taxpayers will be given until the end of the 2020 to 2021 tax year to pay any liabilities that have accumulated during the deferral period. VAT refunds and reclaims will be paid by the government as normal.”

So what does this mean in practical terms? 

1. It means that VAT returns must still be filed on time but that payment of the related VAT liability by the usual deadline is not necessary.
2. VAT returns due 7^th April are included so this captures the current VAT return quarter.
3. The guidance indicates that this deferral only applies to UK businesses and so if you are a non-UK entity who has a UK VAT number, it would appear that you are not eligible for the deferment because you are not a UK businesses.  There is no published information on this but we will update further if HMRC clarify.  Non-EU businesses can still use the time to pay arrangement facility to make payment of any VAT due over an agreed period of months.
4. If you have Direct Debits set-up, these should be cancelled before VAT returns are filed, else monies may still be taken by HMRC.  HMRC’s guidance does not make this clear but we have had a webchat with HMRC helpline who have confirmed that
   1. VAT due from 20 March to end of June can be deferred
   2. No interest charges will accrue whilst the deferred VAT is unpaid
   3. VAT must be paid by 31 March 2021 at the latest so do plan for this
   4. Cancel direct debits to be on the safe side
   5. No need to inform HMRC that you do not intend to pay, it is presumed you will either pay on time or defer, if you defer, see points a, b, c and d.
5. VAT returns AFTER July would revert to normal and so Direct Debit needs to be re-instated else you could end up not paying/receive a penalty next quarter.
6. It may be that the next quarters (after June) returns are also deferred and so we will need to await government confirmation to see if deferral is extended or not.
7. Refunds are unaffected so submit these as usual and HMRC will repay these as usual.
8. Businesses should continue to charge VAT as normal, some posts on social media indicated the businesses didn’t have to charge VAT anymore, they do!
9. This is a great opportunity for taxpayers to defer their VAT bills and allow the business to have some more cash(flow) than normal in these difficult times.

https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses#support-for-businesses-through-deferring-vat-and-income-tax-payments