As part of a raft of measures aimed at mitigating the economic impact of COVID-19, the Chancellor has announced a temporary deferral of all VAT payments. The deferral applies to all VAT payments due from 20 March 2020 until 30 June 2020, which will not be due for payment until 31 March 2021. The Government subsequently produced the following release:
Support for businesses through deferring VAT and Income Tax payments
We will support businesses by deferring Valued Added Tax (VAT) payments for 3 months. If you’re self-employed, Income Tax payments due in July 2020 under the Self-Assessment system will be deferred to January 2021.
For VAT, the deferral will apply from 20 March 2020 until 30 June 2020.
Many of the finer details of how the VAT deferral will work are yet to be disclosed. We have, however, managed to obtain some clarification from HMRC. With the information available, we have produced some Q&As below. These will be updated as and when further information is provided.
Who is affected?
The original wording of the deferral appeared to state that the deferral was only available to UK businesses. We now understand that non-UK businesses can also benefit. We are urgently seeking clarification from HMRC on this.
How can I apply?
There is no application process. Any payments due between 20 March 2020 and 30 June 2020 will automatically be deferred.
Which VAT returns are affected?
Payments due for the VAT return periods ending February 2020, March 2020 and April 2020 will fall under the deferral.
Every UK business submitting quarterly returns should therefore be able to benefit from the deferral.
What about Direct Debit payments?
Direct Debit payments will still process automatically, therefore, you will need to contact your bank to cancel/postpone payments during the deferral period.
Will I pay interest on any VAT deferred?
HMRC has confirmed that there will be no interest due on deferred payments
What about payments on account?
Businesses that are required to make payments on account can benefit from the deferral; it is not clear at this stage how balancing payments and future payments on account will be
What about annual accounting?
Similar to businesses required to make payments on account, annual accounting businesses can benefit from the deferral. It is not clear how balancing payments and future instalments will be affected.
Can I still pay my VAT?
Yes. The deferral is optional; you can still choose to pay any VAT liability during the deferral period.
What if I have already paid the VAT due during the deferral period?
HMRC has confirmed that payments made earlier for VAT return periods falling within the deferral period can be refunded. Businesses will need to write to HMRC to request a refund.
If I defer my payment, will I get a default surcharge?
HMRC has confirmed that default surcharges will not apply to deferred payments. We would reiterate that VAT returns must still be submitted on time.
How will the deferral affect future payments?
HMRC has advised that in order to prevent future payments being allocated against deferred payments, business should clearly allocate future payments to the correct period. Quite how businesses can do this is not clear. We would recommend the following:
- submit future VAT returns before instructing payment;
- where possible, pay the exact amount of VAT due from future returns i.e. do not make part-payments; and
- include the VAT return period on any payment reference, as well at the VAT number.
I receive refunds of VAT. Will these affected?
No. The Government has confirmed that VAT refunds will be processed in the usual way.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.