This briefing covers measures announced on 20 March 2020.
As well as being concerned for the health and welfare of their staff, many businesses will be looking at the impact of the current health emergency on their businesses. With a contraction in available cash we expect that many businesses will need to look at VAT as one of the largest tax flows in the business.
In addition to the potential need to defer the payment of VAT return liabilities, there are a number of ways that VAT can positively impact on the business, many of which can be forgotten in easier trading environments.
VAT Return Payments
On 20 March 2020, the Chancellor announced that UK VAT registered business will be able to delay the payment of VAT return liabilities falling due between 20 March and 30 June.
HMRC have now released some guidance to provide a little more detail about this deferral. The guidance confirms that the deferral is automatic and covers all UK VAT registered businesses (presumably including taxable persons that are not established in the UK), but not businesses who pay UK VAT via MOSS (Mini One Stop Shop).
If businesses choose to delay their VAT payment then the VAT payments falling due in the period between 20 March and 30 June will not need to be paid immediately but instead should be paid at some point before the 30 March 2021 or opt in to an instalment payment plan to pay between March 2021 and January 2022 – read more here.
HMRC have also confirmed that there should be no interest or penalty charges. The deferral is automatic and does not need to be applied for, but any organisations that choose to pay their VAT liability as normal are able to do so in the normal way. The VAT returns due to be submitted during the deferral period must be submitted as usual. HMRC have recommended however, that businesses who normally pay their VAT by direct debit, cancel the direct debit with their bank– just in case HMRC’s systems attempt to automatically collect on receipt of the VAT return.
Naturally, businesses may need to consider the impact of any time to pay arrangement or deferral on current or future borrowing.
To ensure that penalties are avoided VAT returns will need to be submitted on time (especially if the business has not already contacted HMRC on the COVID-19 helpline). Therefore, if individuals are working from home, it is important to consider whether the VAT return can be prepared and submitted remotely, particularly if specialised MTD software is being used.
VAT Cash Flow
The nature of VAT is such that large sums of money pass through taxpayer’s hands before being eventually paid to HMRC. Optimising the VAT flow through the business can make a real difference to overall cash flows.
Things to consider include:
- If you are (or will be) in a repayment position, consider:
- whether the current VAT return stagger is appropriate and whether you can move to monthly returns
- consider whether you can you submit the VAT return more quickly; and
- if HMRC query the return think about how you can efficiently manage the process of getting it authorised. Sometimes it may be worth contacting HMRC in advance of an unusual repayment return to avoid delays.
- If the business is obliged to make payments on account, can these be reduced or even removed entirely if the revised forecast trading position is significantly different to the prior year?
- Are invoices raised at the optimal time to take defer the point at which VAT becomes accountable for to HMRC?
- Is bad debt relief claimed and if so is this claimed in the most efficient way?
- Is VAT claimed on purchases at the earliest possible time and are accruals used where possible?
- Are there any government schemes like cash or annual accounting that could help part of the business or group?
Other VAT Issues
It is of course important at this time to consider general VAT efficiency across the group. There are numerous ways that VAT can be made more efficient from a cash flow perspective:
- Are you recovering all the VAT that you are entitled to? It is easy to miss out on VAT recovery on some invoices especially on employee expenses and mileage or one off transactions.
- VAT Liability – Are there liability issues in your business that can be revisited to see if they are appropriate?
- Partial Exemption - is your partial exemption or business/non business method appropriate and as efficient as it can be?
- When considering partial exemption, it is always worthwhile revisiting the original attribution of costs. In our experience some of the biggest gains are from the way that invoices flow though the accounting system.
The situation is moving very quickly and this briefing has been prepared for general advice only. It is possible that new information will be released in due course and you should check to ensure that no new announcements have been made. Additionally, the above represent some general ideas on how businesses could use VAT to drive cash flow. Ultimately, potential VAT cash flow opportunities will be unique to the trading operations and how each business is structured.
Contact your local BDO tax adviser for advice in specific circumstances.
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