July 1st is fast approaching and from this date, all VAT registered businesses will have to pay VAT on the normal due date. Unfortunately, many firms who are currently struggling will have their problems compounded when HMRC come asking for their money. But all is not lost, as HMRC have been instructed by Rishi Sunak to lend a sympathetic ear to businesses having problems and apply much more flexibility to time to pay agreements.
PSS – Payment Support Service
PSS is a newly created section of government and administered by HMRC and deals with the myriad of issues faced by businesses which results in them struggling to pay their taxes. The priority is to contact the PSS at HMRC before the VAT is legally due for payment. Any time to pay agreement will not then be subject to a default surcharge. Before you call the PSS, make sure you have your VAT number and bank account details to hand. Also, it is important to be clear about how much VAT is outstanding and what your proposals are to settle the arrears. The HMRC officer you speak to will ask for as much detail as possible as to why you cannot pay on time. If you are able to make some payment against your VAT liability on or before the date it’s due, rather than asking for all of the liability to be deferred, this will score significant brownie points. If you need to contact PSS, call 0300-200-3835, lines are open from 8am to 4pm Monday to Friday. You can also visit their website for help: https://www.gov.uk/difficulties-paying-hmrc
Here’s an example from a case I was involved with earlier this week, which I believe illustrates the point well.
The Red Lion PH has been selling take-a-way meals and bottled beers since 15th June, 3 weeks after the Covid-19 lockdown started. The pub owes £3,500 on its May 2020 VAT return, but the owners have had to spend £9,000 to adapt the premises to comply with social distancing and arrange screens for cashiers before it could open its doors. This was an unexpected bill entirely due to the coronavirus. The owners asked the PPS if they can pay £1,000 of the VAT on time on 7th July, with the balance paid at the end of August and September in equal instalments of £1,250 each. I am very pleased to report that the proposal was accepted by HMRC.
VAT payment holiday: Extra time
A number of clients have asked me: “What is the maximum time HMRC will let me have to pay?” This is pretty much the same as asking, how long is a piece of string. First, the business needs to establish how much they can afford to pay and when then justify that time to HMRC. There is no fixed ‘going rate’ period that HMRC allows. What PPS would consider as a reasonable proposal from say a pub would be rejected as excessive if pitched by a pizza take-a-way, that never closed during the lockdown.
Coronavirus reasonable excuse
The concept of reasonable excuse has been the subject of many VAT tribunal hearings over the years because it is not clearly defined in law. In the world of VAT, it is relevant when a business has missed a deadline, eg filing a return on time or paying tax on time. The HMRC guidance on reasonable excuse now includes a paragraph that is specific to the impact of the virus: “HMRC will consider coronavirus as a reasonable excuse for missing some tax obligations (such as payments or filing dates). Explain how you were affected by Covid-19 in your appeal. You must still make the return or payment as soon as you can”. For more information go to https://www.gov.uk/tax-appeals/reasonable-excuses
VAT payment holiday: Extra three months to appeal
More good news is that any taxpayer notified of any HMRC decision that is dated 1st February 2020 or later, will automatically be given an extra three months to appeal the decision if they think it is wrong. To illustrate the point, in another case I was involved with recently, a VAT officer issued a VAT assessment on 31st March, with a 30-day appeal deadline. A quick ‘phone call from our Practice Manager to HMRC saw the appeal date quickly changed to 31st July from the original date of 30th April. This decision by the Treasury to grant a three-month appeal extension, clearly recognises that many businesses might not have been able to appeal, because the key staff were working remotely or furloughing.
So, if any of you have taken advantage of the VAT holiday payment window, but normally paid your VAT dues by direct debit, don’t forget that you must reactivate the direct debit mandate with your bank. If you would like more detailed information on some aspect of UK Tax, send me an e-mail and I’ll be pleased to advise further.