RELEVANT AS OF 1:00PM 23 JUNE 2020
VAT Payment Holiday
Chancellor Rishi Sunak announced that UK VAT registered businesses with VAT return payments owing during the period from the 20 March 2020 to the 30 June 2020 will be deferred. Businesses will have until 31 March 2021 to repay what they owe.
Here are two VAT Payment Holiday timelines. If your VAT liability is less than £2.3m. If your VAT liability is more than £2.3m.
HMRC will not charge interest or penalties on amounts deferred under this scheme. Certain monthly payments on account are covered within the deferral, and HMRC has now clarified that when the balancing payment is outside of 20 March 2020 to 30 June 2020, the amount to be paid is the balancing payment less any deferred monthly payments on account. This is a welcomed clarification and cash flow relief for larger traders (see our timeline for a more visual illustration). It should be noted that this deferral does not cover VAT MOSS payments (i.e. VAT owing on certain sales in other EU Member States), nor will it cover the payment of import VAT obligations at this time.
Direct Debits should be cancelled to take advantage of the deferral, which will need to be set up again after the event. What’s great is that, beyond cancelling your direct debit, this is an automatic offer and will alleviate the burden of immediate cash flow concerns without having to go through any red tape or helpline to get it. It is said to be the equivalent of injecting another £30bn into the economy.
There’s no doubt that this provides businesses with much-needed cash.
Bad debt relief reminder – If you have taken up the VAT payment holiday please remember to not claim VAT bad debt relief for unpaid invoices where the VAT is still unpaid to HMRC. It can only be claimed once the deferred VAT has been paid to HMRC i.e. March 2021.
Thinking ahead to VAT payments which are due after 30 June 2020
Businesses would be wise to think ahead and place themselves in the best position once the deferral period has come to a close. See further VAT tips on how to maximise your VAT position links to here
It is important to recognise that, as things stand, businesses will be expected to continue submitting VAT returns during this period as usual. One further point to note is that HMRC have confirmed that VAT reclaims and refunds will be paid as normal. Therefore, businesses which find themselves in a regular repayment position should not be affected by this announcement.
If you think you may struggle to pay your next VAT payment, HMRC may consider on a case by case basis other measures to support your business, for example time to pay arrangements, a temporary suspension of the monthly payment on account regime or seasonal adjustment of VAT return stagger periods, or delaying the payment of import VAT and customs duties. Get in touch if you would like to talk this through with Damian Shirley.
It may only be a small admin point but don’t forget to reinstall your direct debit so HMRC can collect the next VAT payment, you don’t want to enter the default surcharge penalty regime due to an admin oversight.
If you have had discussions with HMRC we would love to hear your feedback firstname.lastname@example.org
Our VAT Partner, Damian Shirley, gives you his unique insights on VAT and other key measures that are core for all businesses. This is 10 minutes of essential, practical and timely advice. Watch it here.
VAT cash flow optimisation
VAT is an important part of your working capital. It is therefore worth thinking about what opportunities are available to optimise your VAT cashflow beyond the current VAT deferral period. Get some insight here from our VAT partner Damian Shirley.
Wider Covid-19 VAT reliefs
Delaying the payment of import VAT and customs duties due on 15 June 2020
We are expecting HMRC to confirm that businesses affected by Covid-19 will be able to apply to delay the payment of import VAT and customs duties which are due on 15 June 2020. The account holder should contact the Duty Deferment Office on 03000 594243 or by email email@example.com or the COVID-19 helpline on 0800 024 1222. Account holders will be asked to explain how Covid-19 has impacted their business finances and cash flow. On approval, businesses will enter an extended period to make full or partial payment without having their guaranteed called upon or the account suspended.
HMRC has announced that the domestic reverse charge VAT for construction services will be delayed until 1 March 2021. This was previously planned for 1 October 2020 so businesses have another 5 months to plan for its implementation. Spring 2021 is shaping up to be a busy period for indirect tax compliance…Brexit, MTD and now domestic reverse charge for construction services. If we can help plan for this busy period in any way, please contact Damian Shirley.
0% VAT rate for supplies of PPE
HMRC has announced that the VAT rate for supplies of PPE will be 0% and not 20% from 1 May 2020 to 31 July 2020.
The goods covered are those referred to previously by Public Health England as being relevant to the fight against Covid-19, and in summary that guidance includes:
- disposable gloves
- disposable plastic aprons
- disposable fluid-resistant coveralls or gowns
- surgical masks – including fluid-resistant type IIR surgical masks
- filtering face piece respirators
- eye and face protection – including single or reusable full face visors or goggles
If your sales are now VAT zero rated, this may put you in a repayment position. If this is the case, you may want to submit your VAT returns on a monthly basis in order to get the VAT incurred on your purchases refunded by HMRC more quickly. A welcomed cash flow injection. Your VAT periods can typically be altered via your online VAT account.
There may be opportunities for the VAT zero rate to apply to contracts spanning the rate change, particularly on items you’d pre-invoiced for. This would be case by case.
Businesses exporting PPE to areas outside of the EU/EFTA member states and certain other territories may need to apply for a licence and can do so here.
If you need to discuss the rate change and/or switching to monthly VAT returns, please contact Damian Shirley.
0% rate for supplies of digital publications
In light of people staying at home during Covid, HMRC has announced that the VAT rate for supplies of electronic publications will be 0% and not 20% from 1 May 2020 – and not the previously announced date in the Budget of 1 December 2020. This new rate will apply to e-publications of books, booklets, brochures, pamphlets, leaflets, newspapers, journals and periodicals (including magazines) and children picture and painting books.
There are some exclusions dependent upon the purpose of the publication, in which case the new rate will not apply. As has always been the case with printed matter, the position is complex so if you supply these products and would like to discuss this rate change then please contact Damian Shirley.
Import relief on certain medical supplies, equipment and protective garments
HMRC has announced that, for certain products, a business can apply for special authorisation so that no customs duty or import VAT is payable on the imported products until 31 July 2020. The goods must be imported by or on behalf of a UK state organisation or charity and donated or sold (directly or indirectly) to that state organisation or charity. As this relief is effective from 30 January 2020, claims can be potentially made for products which have already been imported. If you need to discuss this relief or how to make a claim, please contact Damian Shirley
Notification period for options to tax
Typically, a business is required to notify HMRC of an option to tax over a commercial property within 30 days of the decision being made. HMRC have announced that, for decisions made between 15 February 2020 and 31 October 2020, the notification period will be extended from 30 days to 90 days. Our own view however is that the decision should be notified as soon as possible to HMRC, it can often drop off the radar leaving greater difficulty further down the line. We can help clients with any notification process if it is causing difficulty.
As this relief is new, requires authorisation and constantly developing we recommend discussing it with Damian Shirley.
Making Tax Digital – digital links requirement extended until April 2021
Businesses have got enough on their plates at the moment, so HMRC have announced that the soft landing period for Making Tax Digital for VAT is going to be extended until April 2021.
This means that all VAT registered businesses will have more time to put in place digital links between all parts of their functional compatible software. HMRC have updated their original MTD guidance to reflect the extension of the soft landing period– you can view this here.
Please see more details of how businesses should prepare for MTD here. Whilst things are naturally quieter through the Covid period, this deferral offers valuable time at this stage to ensure your digital links are ready and you are compliant in the wider sense for MTD. Get in touch if you would like to talk this through with Damian Shirley.
Are you paying trade credit insurance?
Trade credit insurance insures your suppliers against you defaulting on the payment for the goods that they have supplied. However, many businesses are experiencing cover being withdrawn by insurers or their premiums increasing to unaffordable levels.
To try and prevent this, the government has announced that it will temporarily (provisionally until the end of the year) guarantee business to business transactions that are currently supported by Trade Credit Insurance.
Further details can be found here.
Further Support for Businesses Trading Internationally
In addition to the abovementioned specific reliefs, the Government has announced specific DIT and UK Export Finance support for UK businesses that export or deliver goods and services abroad.
DIT will be able to provide assistance with Customs authorities to ensure smooth clearance of products into third countries, along with wider business continuity support whilst disruption is faced. For assistance, DIT’s business support team can be contacted here, or you can give them a call on 0300 456 3565.
If your international supply chain has been affected, then the DIT has also helpfully confirmed that it has relationships with a global network of businesses across the world and will support businesses in trying to keep the supply chains moving.
If your business is actually operating and delivering projects in other countries, it is important that you follow local guidance and speak to your nearest UK embassy or consulate. The Government also refers businesses to its general advice on overseas business risk in a number of overseas territories. A link to the Government’s extensive country-by-country guidance can be found here.
UKEF Financial support
UK Export Finance (UKEF) will be working with banks and insurance brokers to support businesses in fulfilling their export contracts. It will facilitate guarantees, loans and insurance on behalf of the Government that will protect the export supply chain. Specific examples cited include:
- Assisting with cash flow through a government back working capital scheme;
- Insurance policies to support aborted contracts outside of your control; and
- Support the facilitation of finance for overseas buyers so they can continue to buy your goods and services.
Should you need to discuss matters further with UKEF, then they can be contacted here.