Coronavirus: the VAT impact

As the coronavirus crisis continues, there has understandably been a lot of focus on the support available for furloughed employees and the self-employed. However, there have also been a number of announcements of importance to VAT-registered businesses and their advisers.

VAT payment deferral

One of the biggest changes came on March 20, when the Government announced that VAT payments could be deferred for a three-month period.

This deferral:

• is available to all business with a UK VAT registration number (including non-established businesses);
• applies to payments due between March 20, 2020 and June 30, 2020; and
• is automatic, with no application or notification to HMRC required (but businesses who pay by direct debit do need to take action, as outlined below).

Businesses will not be required to make VAT payments during the deferral period, and will instead be given until March 31, 2021 to pay any liabilities which accumulate.

This means in practice that the following can all now be deferred until March 31, 2021:

• Payments for quarterly returns ending February 29, 2020 (if not already paid by March 20, 2020).
• Payments for quarterly returns ending March 31, 2020.
• Payments for quarterly returns ending April 30, 2020.
• Payments for monthly returns due between March 20, 2020 and June 30, 2020.
• Payments on account due between March 20, 2020 and June 30, 2020.
• Annual accounting advance payments due between March 20, 2020 and June 30, 2020.

The deferral does not however extend to VAT MOSS payments.

HMRC have said that they will not charge interest or penalties on any amount deferred as a result of this announcement.

VAT refunds and reclaims will also continue to be processed as normal. If a business defers a payment and then submits a repayment claim in a later quarter, HMRC have indicated that they will offset that repayment against existing debt from before the deferral period (in the normal way), but will not set it against any deferred VAT payments.

There are a few important practical points to note, including:

• Businesses must continue to file VAT returns during the deferral period, and the normal filing deadlines still apply.
• If a business pays by direct debit, they need to cancel their mandate in sufficient time to prevent payment being taken – HMRC are not automatically suspending collection of direct debit payments.
• Those businesses that do cancel their direct debit mandate will need to remember to set up a new one once the deferral period is over, so worth making a diary note now.

MTD and digital links

Under the Making Tax Digital (MTD) for VAT rules (which came into effect for most businesses from April 2019), businesses have to keep digital records and use software to submit their VAT returns to HMRC.

Businesses within the scope of MTD for VAT are also required to have digital links in place for any transfer or exchange of data between software programs, products or applications used. This requirement was however subject to a one-year soft landing, meaning it was not intended to take effect until April 2020.

Some businesses had indicated that they would struggle to meet the digital requirement, and in response HMRC introduced a system whereby those with complex or legacy IT systems could apply for additional time to put the required digital links in place, subject to meeting certain qualifying criteria.

On March 30, 2020, HMRC went a step further and announced that the soft landing period for digital links will be extended by one year for all businesses within MTD for VAT. This means that businesses now have until their first VAT return period starting on or after April 1, 2021 to put digital links in place.

Is anything more coming?

Whilst the above announcements are very welcome, there remain a number of open questions about how the VAT system will operate during the coronavirus lockdown and aftermath.

One particular area of concern is the use of estimated figures. Normally, a business that wishes to use estimated figures in their VAT return is required to seek HMRC permission in advance. The number of businesses needing to use estimated figures is likely to increase during the coronavirus crisis, as many will have absent staff, meaning that access to the usual information and records may be restricted. The ATT has asked HMRC whether the requirement for advance permission to use estimated figures could be temporarily relaxed.  We will be updating the information on our dedicated coronavirus pages on our website as and when we receive further information.

As the crisis continues, other deferrals and delays may become necessary. In particular, might the VAT payment deferral be extended beyond June 30? What about proposed new measures, such as the reverse charge for the construction industry (due to come into effect from October 1, 2020)? We may well see additional temporary measures introduced. It is encouraging that both Government and HMRC appear to be taking a very pragmatic approach.