Many UK businesses are at risk of losing out on the coronavirus three month VAT deferment if they do not act immediately.
After announcing the easement on 20th March, HMRC has followed up with a warning that direct debit payers must contact their banks to cancel the facility, or the VAT will automatically be withdrawn early next week.
Other details remain confusing, including repayment dates and payments on account. Taxpayers who use mini one-stop-shop returns, known as MOSS, are not included in the scheme.
(MOSS only applies if you are a UK business who makes supplies to consumers in EU member states)
VAT deferment: £30bn VAT payments suspended till 30th June 2020
On 20th March, the new Chancellor, Rishi Sunak, announced a three month VAT payment deferment lasting until 30th June 2020, worth over £30bn for over two million businesses, and providing a much needed additional credit line.
The tax holiday will be automatic, although businesses may still go ahead and pay now if they wish and taxpayers do not have to notify HMRC if they intend to take advantage of the payment holiday.
Any VAT deferred will be payable by the end of the 2020/21 financial year, which is 31st March 2021, the date for monthly VAT payers. However, the position is more complicated for most VAT-registered businesses that are on quarterly VAT returns.
HMRC has yet to confirm their position. But the expected payments dates will be, depending on return deadlines: 31st March 2021; 30th April 2021; or 31st May 2020. There will be no interest or default surcharges due on deferred VAT. VAT credits and refund will be paid as usual during the period.
VAT returns still due; Making Tax Digital (MTD) phase 2 kicks in
It is essential to remember that although you don’t have to pay any VAT due to HMRC; VAT returns must still go in on time by the 7th of the relevant month.
Also, as HMRC has not postponed the launch of the new MTD for VAT phase two, all VAT registered businesses are obliged to introduce digital bookkeeping. This means no manual adjustments to data, consolidating in spreadsheets, or using ‘cut and paste’.
The regular VAT penalty regime for missing any MTD obligations also comes into play on 1st April 2020 when the one-year soft-landing phase of MTD ends.
VAT deferment: Direct debit payers at risk
One major glitch in the plan is taxpayers on direct debit. HMRC will automatically withdraw the VAT declared in the VAT return. They cannot stop this process. So any direct debit payers must contact their bank immediately to cancel the payment.
VAT deferment: What happens after June?
Given the deepening economic gravity of the COVID-19 situation, it is looking increasingly likely that there will be an extension in July to this VAT deferment. So direct debit payers should be careful to double-check on VAT updates, before reinstating their payments.
Tax Accountant’s Summary
While I was very pleased to hear that VAT payments could now be deferred, I was rather disappointed that MTD and the associated penalty regime was still being introduced, as though the pandemic was not happening.
The Chancellor is being contacted by all accountancy bodies right now in an attempt to get him to exercise commonsense and defer MTD until 1st April 2021. I hope he does!
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