As the COVID-19 coronavirus pandemic rages on, understandably, there has been a lot of talk about finances, particularly for those who have been furloughed or who are self-employed. However, there have also been several important announcements for VAT-registered businesses and their advisers.
VAT payment deferral
On March 20th, it was announced by the Government that VAT payments could be deferred for three months. During the deferral period, businesses will not be required to make VAT payments and will have until March 31st, 2021 to pay any liabilities which accumulate. The VAT deferral is:
- Available to all businesses who have a UK VAT registration number, this includes non-established businesses;
- Applicable to payments which are due between March 20, 2020, and June 30, 2020;
- Automatic; you do not need to apply to or even notify the HMRC.
The HMRC has assured businesses that they will not charge interest or penalties on any amount deferred due to this announcement. This deferral, however, does not extend to VAT MOSS or import VAT payments.
All the following can now be deferred until March 31, 2021, if needed:
- Payments for quarterly returns ending February 29, 2020, March 31, 2020, and April 30, 2020.
- Payments for monthly returns due between March 20, 2020, and June 30, 2020.
- Payments of account due between March 20, 2020, and June 30, 2020.
- Annual accounting advance payments due between March 20, 2020, and June 30, 2020.
It was also announced that VAT refunds and reclaims will continue to be processed as normal. If a business defers a payment and then submits a repayment claim during a later quarter, HMRC will offset the repayment against existing debt from before the deferral period but will not set it against any deferred payments.
It is important for businesses to remember that they still have to file VAT returns during the deferral period, and they must stick to the same deadlines. Those businesses that pay VAT payments through direct debit and want to defer must cancel their direct debit in good time to prevent any payments being taken as HMRC will not automatically suspend the collection of direct debit payments. If you do cancel your direct debit, make a note to set it back up after the deferral period.
Making Tax Digital (MTD)
The Making Tax Digital (MTD) for VAT rules came into effect for many businesses from April 2019. Under these rules, businesses must keep digital records and use software to submit their VAT returns to HMRC. These businesses also have to have digital links in place for any transfer or exchange of data between software programs, products or applications used.
This requirement was subject to a one-year soft landing, so it would not take effect until April 2020. After the breakout of the coronavirus, on March 30, 2020, HMRC announced the soft-landing period for the digital links will be extended for a year for all businesses within MTD for VAT. Businesses will now have until their first VAT return period starting on or after April 1, 2021 to put these digital links in place and will not be penalised for non-digital filing until after this date. During this soft-landing period, if a digital link has not been established between software programs, HMRC will allow a business to submit the data by ‘copy and pasting’ it.
Will anything else be implemented?
Although these VAT announcements have been welcomed by businesses, there a still some questions and concerns about how the VAT system will operate during the coronavirus lockdown and afterward.
Many are worried about the use of estimated figures. The number of businesses that need to use estimated figures will likely increase during the coronavirus crisis, as with the increase of staff absences, access to the usual information and records could be restricted. Usually, if a business wants to use estimated figures, they have to ask for the permission of the HMRC in advance. The ATT has asked HMRC if they could temporarily relax the requirement for advance permission to use estimated figures.
As the coronavirus crisis continues and we still do not have a clear idea of when the lockdown will end, other deferrals and delays may need to be implemented. For example, the VAT payment deferral period may need to be extended past June 30th. We may yet see more temporary measures put in place to help businesses during these unprecedented times. In the meantime, if you are experiencing any financial difficulties due to the impact of the COVID-19 coronavirus, more help is available from HMRC’s Time to Pay service.