On Friday 20th March 2020, we had the welcome announcement that the U.K. government would extend the time to make VAT payments due in the period from 20 March 2020 to 30 June 2020. 

What does this mean for you? 

Should you wish to avail of this facility, you do not need to make your VAT payments which are due between 20th March 2020 and 30 June 2020. These can be deferred to the end of the 2020/2021 tax year (this will depend on your financial year end). 

You do not need to apply and no penalties or interest for late payments will be due.

You do need to make sure you still file your VAT returns that fall due during this period. Failure to do so could result in default surcharges (penalties).

Based on the current government easement, the first VAT payment due for many companies will be the 7th July 2020 payment.

What if I normally receive refunds of VAT or because of this crisis my VAT return profile will switch from payments to repayments?

HMRC will continue to pay refunds on time. Therefore, we would recommend preparing your VAT return as early as possible (it can be submitted as early as the day after the period end) – HMRC typically refund VAT within 10 days of submission of the VAT return.

If you are not on monthly VAT returns, you could switch to monthly VAT return filings so as to speed up your VAT refunds.

What happens after 30th June 2020?

At this stage, this is an unknown. We expect that subject to how the current crisis pans out, the government may need to offer additional easements. The government has confirmed that other tax (including additional VAT) deferrals are available – see below for further details on this and other steps you can take to improve your cashflow during this crisis.

What if I need additional extensions to pay my VAT and other taxes to HMRC?

HMRC have expanded the team on their helpline for those struggling to make payments of taxes. The helpline has been inundated with calls particularly in the run up the payroll taxes payment which was due on Friday 20 March. The staff have different financial authorisation levels but have generally permitted three months extensions on payroll taxes.  

However, as this crisis progresses you may need to have a more structured payment plan agreed with HMRC over a longer period of time. It is anticipated that HMRC will require a presentation of financial and commercial information in order to approve extended high value time to pay arrangements for taxes, especially for those falling due after 30 June 2020.  

The same applies to taxes which fell due before 20 March, either because you could not pay or you had made an error in your declarations.  

Any errors in VAT returns should be disclosed to HMRC and if needed, we can work with you to present a payment plan request to HMRC.

We, at A&M Taxand UK LLP are liaising with HMRC, industries heavily impacted by this crisis and R3 (the Restructuring and Turnaround practitioners’ body) to establish clear guidelines on what companies will be required to present to HMRC and also what they can reasonably expect so that everyone is on a level playing field.

What else can the government do to support businesses?

Postponed Import VAT Accounting

We, at A&M Taxand UK LLP are also petitioning HMRC to accelerate postponed import VAT accounting.  This was originally planned to be introduced in January 2021 when Brexit kicks in. It will mean that qualifying companies do not have to pay import VAT and then wait for their VAT return in or order to claim it. With postponed import VAT accounting, import VAT is declared via VAT returns and does not cost importers cashflow.  It will not cost the government money to implement this arrangement but will save cashflow for importers.

Given the importance of getting critical products into countries right now, any cashflow savings would be welcome by industry.

Special VAT arrangements for clinical trials businesses

We, at A&M Taxand UK LLP are also petitioning HMRC and EU tax authorities (via our international network) to introduce special measures so that Import VAT is not payable on clinical trials materials. Never has the importance of clinical trials been so critical globally, yet import VAT frequently represents a significant cashflow and in some cases cash cost to the clinical trials industry due to the specifics of VAT legislation in the EU.  

We consider it would be a gamechanger for the clinical trials industry if tax authorities allow the movement of clinical trials materials around the world more quickly without a wait of up to two years for an import VAT refund in some countries. This should not cost any tax authority anything to implement.

OTHER CASHFLOW SAVING PLANNING WHICH CAN BE PUT IN PLACE NOW FOR FUTURE CASHFLOW SAVINGS

What if I make monthly payments on account for VAT – these are now much higher than my VAT payable?

You can request that HMRC reduce your monthly payments on account schedule as trade is currently very distorted.  Alternatively, you can switch to monthly VAT returns so that you are paying the correct amount of VAT – this gives you an extra seven days to pay compared to the monthly payment on account regime.

My customers are not paying me but I still have to pay VAT to HMRC, what can I do?  Is there anything I can do to delay paying VAT?

Late paying customers - If customers are not able to pay you but your VAT still falls due after 30 June 2020, you can claim VAT bad debt relief six months after the due date of this supply. This will obviously take some time to kick in but you should review your past bad debts. On the flip side, you are also required to repay VAT on purchases you have not paid for six months after their due date.

Suppliers of services - If you supply services, which are considered to be continuous services, you can issue payment requests rather than VAT invoices – this means the “VAT tax point” is not triggered until you receive payment from your customer.

Suppliers of goods - If you supply goods and certain services, you can potentially apply for an extension of the VAT tax point by invoicing 14 days or more after the supply. You must get HMRC’s permission to go beyond the 14 days.

What if I have companies in other countries?

Tax authorities in other countries are offering delayed tax payment arrangements – this varies from country to country and is changing on a daily basis. We can provide you with specific country advice via our international network.

If you have any questions about any of the topics above, please do not hesitate to contact any of your regular A&M Taxand UK LLP contacts. We also have a team of turnaround and distressed business advisors – if you need any support with business continuity planning, we can help.