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Lockdown can affect your VAT Returns!

15th May 2020
VAT Consultant vatadvice.org
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We are finding that the lockdown is having a range of implications regarding taxpayers’ VAT Returns.

If you are responsible for preparing clients’ VAT Returns, do watch for these issues … and I am confident many more will arise.

  1. the three-month rule for export or removal of goods, which is a condition of zero-rating. The Chancellor has relaxed this rule, and you can find guidance in VEXP30310.  
  2. the 12-month rule for re-entry into the Flat Rate Scheme – if this period overlaps with the lockdown, this might facilitate re-entry into the FRS.
  3. the proportions of taxable and exempt income might be distorted, for example, where one income stream disappears – this will affect clients subject to Partial Exemption, or Charities using a business : non-business apportionment.
  4. where the client wants to use the reduced rate for certain residential renovations and needs to satisfy the first AND second rules (empty for 2 years & carry out works within 1 year) – this will apply where the client has or intends to occupy the property.
  5. Where an adjustment is required under the change of intention rules (payback & clawback) – again the income may be distorted; or the expected selling price, if that is a factor.

As always, keep a file note to evidence any relevant information.

There is also the question of whether a business whose income has entirely or almost entirely disappeared and whether he should deregister for VAT. There is a separate forum post on that question.

 

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By johnjenkins
20th May 2020 12:27

Hi Les,
One important issue that really needs looking at is if lockdown has caused a VAT return not to be submitted.

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By Les Howard
22nd May 2020 09:20

Important point. I have spoken with some businesses whose paperwork is in physical files, so they cannot complete their Returns. As you say, lockdown will actually prevent some businesses from submitting Returns.
I would suggest that HMRC should allow a reasonable excuse defence so that surcharges do not arise. The key will be to collate a simple factual narrative of what happened, with dates.

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By johnjenkins
22nd May 2020 09:37

The easiest thing would be for HMRC to say no penalties for late returns during lockdown. I really can't understand why that is not the case.

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