Covid-19 is disrupting business across the world requiring tax authorities to implement rules and reliefs to support businesses through this period. We are pulling our global indirect tax resources together to create a single source of information, support and thought leadership.
What type of business is this information relevant for?
All UK VAT registered businesses, whether UK established or otherwise. Business leaders as well as heads of tax, financial directors and finance teams with particular responsibility for preparing and filing VAT returns, will find this information relevant.
VAT/GST reliefs – tax authority announcements
As of this moment the UK government has made no changes to its VAT rates, but has allowed businesses to defer VAT payments that fall due, under the usual VAT return rules, between 20 March and 30 June 2020. This is an automatic offer with no applications required. All UK VAT registered businesses are eligible, including non-established businesses. Taxpayers will be given until 31 March 2021 to pay any liabilities that have accumulated during the deferral period. However, the deferral does not cover VAT payments due under the Mini-One-Stop-Shop scheme.
VAT returns must still be submitted on time and VAT refunds and reclaims will be paid by the government as usual.
The monthly payment to settle import VAT and duty due on a duty deferment account on 15 April 2020 can be delayed, subject to agreement with HMRC, the UK tax authority. Deferment account holders and registered importers must contact HMRC for approval to enter an extended payment period and explain how coronavirus has affected their business finances and cash flow.
VAT assessments from HMRC and voluntary disclosures of errors must be settled. Taxpayers should approach HMRC to negotiate a specific time to pay agreements if they are unable to pay the assessment in full.
The introduction of the ‘Making Tax Digital’ requirement to put digital links in place throughout the VAT return audit trail has been delayed until April 2021.
What ideas have you generated to support businesses?
In the current environment, cashflow savings may be more valuable than ever despite the government’s measures. Here are some ideas for how you can reorder your VAT strategy to optimise cash flow:
- Monthly VAT returns – businesses that claim regular VAT repayments from HMRC should change from quarterly to monthly VAT returns if they have not already done so. Monthly returns should be submitted as soon as possible after the end of the month to encourage HMRC to process the refund quickly.
- Input tax accruals – identify purchase invoices that are dated within the current VAT accounting period but are not entered into the accounts until after they have been closed off for the quarter. The recoverable VAT should then be added to the input tax on the current VAT return for that VAT period, rather than waiting until the next return. This is a one-off cash flow saving – it must then be adjusted in subsequent periods.
- VAT Refunds - Consider submitting claims for refunds of VAT paid overseas (or paid in the UK by overseas businesses) now rather than waiting for the deadlines (30 September for EU VAT refund claims or 31 December for 13th Directive refunds).
- Delay in tax point by commercial Landlords - asked by commercial tenants to delay rental payments or request rent free periods should consider deferring the issue of the invoice or issuing a payment request/pro-forma invoice instead, which does not create a tax point for VAT purposes.
- Tour operators - consider using Method 1 to determine their tax point under the Tour Operators Margin Scheme (TOMS). Under Method 1, the tax point for VAT purposes is the date on which the 'traveler departs', rather than the date of receipt of payment. HMRC also accepts that, in the event of a cancellation, there is no tax point for the supply under Method 1, so VAT does not have to be accounted for on retained deposits.
- Bad debt relief – businesses who have made supplies to customers and not been paid are entitled to claim relief from VAT on bad debts. This applies to debts that remain unpaid for a period of 6 months after the later of the time the repayment is due and the date of the supply. It is conditional on the VAT having been accounted for on the supply and paid to HMRC, and the debt being written off in the day to day VAT accounts and transferred into a separate bad debt account.
- Review VAT groups – where members consist of both payment and repayment businesses, consider adding or removing companies from the group to segregate payment and repayment companies into separate VAT registrations. This could speed up repayments and/or avoid them being offset by payments.
- Duty deferment for imported goods – instead of paying at the time of import, consider applying for a duty deferment account to delay the payment of customs and excise duties and VAT. The charges deferred during the calendar month must be paid as a total sum on the 15th day of the following month. Applicants must obtain a bank guarantee as security.
- Customs warehousing – importers should consider placing goods in a customs warehouse, where they can be stored with customs charges suspended until the goods are removed for use.
- Excise duty – businesses trading in excise goods, such as alcohol, tobacco, hydrocarbon oils, or providing betting and gaming services should consider asking HMRC for time to pay the liabilities on their excise duty returns.
Call to action
- Ensure online systems are working well so that staff, customers and other stakeholders have the information they need to meet compliance requirements and plan proactively.
- Keep the VAT planning and strategy flexible and revisit it regularly as the situation will change considerably over the coming months as new measures are introduced.
- Embracing technology– authorities are likely to press ahead with the drive for technology and enhanced VAT reporting.
- The opportunities and challenges provided for the end of the Brexit transition period will also need to be considered for businesses trading with and from the UK.
- Those the sectors most impacted i.e. in the entertainment, leisure and hospitality sectors, should actively engage with property landlords, around flexibility in leases, payment deferral options and rent holidays.