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Managing VAT to protect cash flow

For many organisations within the sports sector, VAT will be one of the largest tax flows. In the current environment, it’s particularly helpful to consider the cash flow of VAT payments and any ways that VAT incurred on costs can be mitigated. At the same time it remains important to maintain VAT compliance in respect of the submission of VAT returns, making any payments and Making Tax Digital (MTD).

The Government has introduced a number of COVID-19 measures applicable to organisations within the sports sector, as outlined below. We also provide an overview of VAT cash flow ideas and VAT mitigation opportunities;

VAT Deferral
Duty and import VAT deferral
VAT cash flow
VAT reliefs
VAT recovery
VAT liability

If you’d like more information on how your sports business can respond to COVID-19, please contact Lyndon Firth

 

VAT deferral

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 2020 and 30 June 2020. 

This is an automatic offer with no applications required. Organisations will simply not need to make a VAT payment during this period. Any delayed payments should, however, be made at some point before 30 March 2021. If your organisation pays VAT due by direct debit, this will need to be cancelled with your bank during the relevant period. This should be done in sufficient time so that HMRC does not attempt to automatically collect the payment on receipt of the VAT return.

VAT refunds and reclaims will be paid by HMRC as normal.

Although payments may be deferred, VAT returns due during the deferral period must be submitted as usual. 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. 

We expect HMRC’s system to automatically issue default surcharge liability notices where VAT payments have not been made during the deferral period. It is often possible to have these overturned using specific technical arguments.

If organisations have any concerns about making tax payments, including VAT, that become due after 30 June 2020, then a negotiated agreement with HMRC beyond this period can be sought.

For further details, read HMRC’s guidance.

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Duty and import VAT deferral

Certain sports organisations may import goods from outside the EU. On 10 April 2020, HMRC announced that the payment of import VAT and duties due on 15 April 2020 can be delayed. However, the deferral is not automatic and is subject to certain conditions.

  • Duty deferment account holders

Help is available for duty deferment account holders that are experiencing severe financial difficulty as a result of COVID-19 and are unable to make payment of deferred customs duties and import VAT due on 15 April 2020. They can contact HMRC for approval to enter into an extended period to make full or partial payment, without having their guarantee called upon or their deferment account suspended. Such duty deferment account holders will be asked to provide an explanation of how COVID-19 has impacted their business finances and cash flow.

Duty deferment account holders will be able to use their accounts during the extended payment period agreed, unless they default on a subsequent payment in that period. If this happens, HMRC may consider suspending their account.

The outstanding payment will not affect the duty deferment limit, so account holders will not be required to increase their guarantee to cover the outstanding payment. Where HMRC agrees to an extended payment period, interest will not be charged on the outstanding payments, provided they are paid in full by the agreed date.

  • Duty and import VAT payments not covered by a duty deferment account

Registered Importers that pay cash or an equivalent and are facing severe financial difficulties as a direct result of COVID-19 can contact HMRC to request an extension to the payment deadline at the time the payment is due. They will be asked to provide an explanation of how COVID-19 has impacted their business finances.

HMRC will consider this request and decide whether or not to agree an additional time to pay. The decision will be taken on a case-by-case basis and could be refused.

If the request is approved, the conditions, including the length of time offered, will depend upon the importer’s individual circumstances and may require the holding of a guarantee for the period of the time extension.

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VAT cash flow

In addition to deferring VAT under the Government’s specific COVID-19 measures, organisations can take other steps to improve their working capital and cash flow position through VAT. The nature of VAT is such that large sums of money pass through taxpayers’ hands before being paid to HMRC. Optimising the VAT flow through the organisation can make a real difference to overall cash flows and working capital. 

A whole suite of techniques are available for achieving this, all of which are non-aggressive and represent good-housekeeping. The key opportunities to consider are outlined below.

VAT return stagger

The majority of organisations within the sports sector are likely to be in a VAT payment position. However, if you are (or will be) in a repayment position, perhaps due to capital expenditure, consider: 

  • Whether the current VAT return stagger is appropriate and whether you can move to monthly returns to ensure VAT repayments are received more efficiently
  • Whether you can you submit the VAT return earlier in the month each period.

If HMRC queries 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.

Payments on account

COVID-19 will cause significant disruption to organisations within the sporting sector – with many closing facilities for significant periods of time.

If your organisation is obliged to make payments on account, it should consider contacting HMRC to reduce these payments or remove the requirement entirely if the revised forecast trading position is significantly different to the prior year.  

Invoices

Are invoices raised at the optimal time to defer the point at which VAT becomes accountable for to HMRC?  

VAT bad debt relief

Is bad debt relief claimed and, if so, is this claimed in the most efficient way? 

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VAT reliefs 

Before considering whether VAT recovery is being maximised (detailed below), organisations should review their purchases to see if they are using the VAT reliefs available. Areas to review include: 

  • Printed matter 
  • Fuel and power – a reduced rate of VAT (5%) will apply to electricity supplied at a rate of not more than 1,000 kilowatt hours a month or a delivery of not more than 2,300 litres of gas oil, whatever the use of the building. 

For sporting organisations that hold charitable status for VAT purposes, the following, additional VAT reliefs are available (subject to certain conditions): 

  • Advertising – including staff recruitment
  • Fuel and power 
  • Construction services and land and property
  • Certain medical, scientific and rescue equipment. 

Organisations have up to four years to claim back any VAT previously overpaid.  

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VAT recovery

It is also useful to consider whether VAT recovery on costs is being maximised. Examples of areas to consider are as follows: 

  • Timing: Is VAT claimed on purchases at the earliest possible time?
  • Review of purchases: Are you recovering all the VAT that you are entitled to? It’s easy to miss out on VAT recovery on some invoices, especially on employee expenses and mileage or one-off transactions.
  • 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.  

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VAT liability

Are there liability issues (standard rated/zero rated/reduced rated/exempt/outside the scope of VAT) in your business that can be revisited to see if they are appropriate? Potential areas to consider include: 

  • Eligibility for the sporting exemption  
  • Hire of children’s clothing e.g. children’s shoes or ice skate hire 
  • Hire of sports facilities e.g. block bookings  
  • Catering provision or vending machines 
    • Product liability  
    • Eat in vs. takeaway  
  • Fundraising exemption.  

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Key Contacts

LYNDON FIRTH
VAT Partner
BDO Leeds

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