VP of Global Indirect Tax Avalara
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Coronavirus VAT deferment: Get the details right

Many UK businesses are at risk of losing out on the coronavirus three month VAT deferment if they do not act immediately.

7th Apr 2020
VP of Global Indirect Tax Avalara
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Update 7 April: HMRC has since confirmed on 3rd April that import VAT will still be payable on clearing goods coming into the UK arriving from outside of the EU. There will be no postponement of the import VAT. Businesses may therefore reconsider their sourcing arrangements as this gives goods sourced from the EU (and not the UK or non-EU) a VAT cash flow advantage until the end of June.

* * *

After announcing the easement on 20 March, HMRC followed up with a Q&A warning direct debit payers that they must contact their banks to cancel the facility or the VAT will automatically be withdrawn in the next few days.

Other details remain confusing, including repayment dates and payments on account. Taxpayers who use mini one-stop shop returns (MOSS) are not included in the scheme.

£30bn VAT payments suspended till 30 June 2020

On 20 March, the new Chancellor, Rishi Sunak, announced a three month VAT payment deferment lasting until 30 June 2020. This amounts to a £30bn credit line for over two million businesses. The tax holiday will be automatic – see direct debit payer risk below – although businesses may still go ahead and pay now if they wish. Taxpayers do not have to notify HMRC if they intend to take advantage of the payment holiday.

Any VAT due will be payable by the end of the 2020/21 financial year, which is 31 March 2021.

There will be no interest or default surcharges due on deferred VAT. VAT credits and refund will be paid as normal during the period.

VAT returns still due; *MTD phase 2 delayed...*

Importantly, VAT returns must still go in on time by the 7th of the relevant month.

Breaking news, 30 March - HMRC has now postponed phase two of Making Tax Digital for VAT. This means the rules on maintaining digital links from original transaction to tax return will not be enforced until 1 April 2021. Businesses now have until their first VAT return period starting on or after 1 April 2021 to put digital links in place.

The latter means no manual adjustments to data, consolidating in spreadsheets, or using ‘cut and paste’. The regular VAT penalty regime for missing any MTD obligations also comes into play on 1 April 2020 when the one-year soft-landing phase of MTD ends.

Direct debit payers at risk

One major glitch in the plan is taxpayers on direct debit. HMRC will automatically withdraw the VAT declared in the VAT return. They cannot stop this process. So any direct debit payer must contact their bank immediately to cancel the payment.

Mixed messages for some VAT payers

After initial confusion, foreign businesses with a UK VAT registration have been confirmed as eligible for the VAT deferral. However, any businesses filing for B2C electronic services sales have been excluded. They will have to pay the VAT due as normal. There are no details yet on payment-on-account payers. But we assume there will be a postponement, too?

What happens after June?

Given the deepening economic gravity of the COVID-19 situation, it is entirely possible that there will be an extension in July to this VAT deferment. So direct debit payers should pause before reinstating their payments. And we should all keep tuned.

For more technical background about VAT in these difficult times, Richard Asquith hosted a 30-minute online webinar - view on demand here.

Replies (24)

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blue sheep
By NH
30th Mar 2020 09:22

Hmmm, only about a week out of date this 'news' thanks sift

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Replying to NH:
John Stokdyk, AccountingWEB head of insight
By John Stokdyk
30th Mar 2020 09:33

You're wrong there, the article was published on Thursday but went out as a round-up for readers of our tax bulletin this morning.

The information about direct debit came through shortly before the item was first published and we've been picking up further snippets such as the MOSS users not being eligible since.

The situation with all of these measures is developing incrementally, so we thought it was a good idea to try and collect them in one simple reference source. Richard Asquith and the people at Avalara (not to mention HMRC) went out of their way to help put this material together to help the broader community, so it looks petty to snipe at them without much justification.

On behalf of AccountingWEB, I'd like to publicly thank them for their efforts and politely ask that people be a more understanding and less snarky at this time.

Thanks (3)
Replying to John Stokdyk:
blue sheep
By NH
30th Mar 2020 09:51

Appreciate you are doing your best John - we sent this information out to clients and shared via Any Answers on the morning of the 23rd, ie a week ago having had confirmation directly from HMRC that morning.
It just seems to me that Any Answers has become the only place to go on here now.

Yes, snarky, nice word, I apologise for that, I was being sarcastic but our clients and we ourselves are having to keep ahead of the game - I just feel it would have been nice for A Web to provide answers for us rather than 4 days after we have already posted the information on Any Answers. Sorry if that offends.

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By raybackler
30th Mar 2020 09:23

Just had an email from HMRC cancelling the direct debit for a client. They obviously do not have the facility to just not process the payment. I have had a client already contact me not wanting to take advantage of the deferral and I don't either.

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Replying to raybackler:
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By ATTres
06th Apr 2020 16:27

Would you mind elaborating why not take advantage of this deferral?

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By steve marsland
30th Mar 2020 09:31

Whilst the deferment of the VAT payment is welcome for a lot of businesses I can't help feeling that HMRC insisting on the VAT return being submitted by the normal due date is just missing the point. Where an accountant does the businesses bookkeeping and VAT work how is the business going to get the information to the accountant particularly when both are in lockdown with limited access to the paperwork and the means to complete the return. Is that really a necessary journey?

For those businesses that are fully digital it wouldn't appear to be a problem but the vast majority of businesses are nowhere near that stage. Also, in some cases the business and accountants may well be considering furloughing staff which may have to be delayed to ensure the paperwork is processed post quarter end all of which could end up costing these businesses in the long run and given the fact that most businesses will take the deferment period you would have thought an extension to the filing date, or clarification on whether the late submission would put the business into a surcharge period which might result in penalties in the future would be helpful.

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Replying to steve marsland:
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By cazas
30th Mar 2020 14:02

I was just wondering that myself. I can access some clients information but it won't be up to date because they have been furloughed. Other clients, I can't access anything at all so the March return won't be submitted.

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Replying to steve marsland:
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By bendybod
01st Apr 2020 11:04

I'm working on the basis that so long as something is submitted, we can correct any omissions at a later date. Obviously I wouldn't suddenly process a whole load of reclaim situations for clients who normally pay (unless they're legitimate) but if they can only manage to get some information to me then I would be prepared to file based on what they can get to me or even submit a nil return and correct in a later quarter on the basis of not being able to access the information.
I am asking clients as much as possible to email documents though so that we can access as much as possible remotely.

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By Kazziep
30th Mar 2020 10:15

With reference to foreign business with UK VAT registration, such as Non Resident Landlords, please could anyone advise where this information can be found on HMRC website. I have spent the morning on the phone to them and nobody knows.

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By keith knowles
30th Mar 2020 10:18

If I understand the rules the deferment of VAT is for VAT payable up to 30 June 2020. What I do not know is does this include the quarterly VAT return to 31 May 2020. The online filing deadline is the 7th July 2020 and payment on that date or slightly later is a direct debit is present. Does this mean that the return is within the deferment period or not? If the latter than for most businesses the last return covered by the deferment is the quarter to 30 April 2020, not really that generous.

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Replying to keith knowles:
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By petestar1969
30th Mar 2020 11:36

I would imagine the relevant return for your client is the February one, payment for which is due by 10 April, ie payment due between 20 March and 30 June.

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Replying to keith knowles:
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By brumsub
30th Mar 2020 12:11

I understood this to include the vat q/e 30.4.2020 but getting conflicting information. This link from ICAEW suggests 30/4/2020 and I assume they have more information than most.
https://www.icaew.com/insights/tax-news/2020/mar-2020/covid19-vat-and-se...

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Replying to brumsub:
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By brumsub
30th Mar 2020 13:39

Didn't phrase my answer above properly, apologies.

1. This applies to VAT payments DUE from 20 March 2020 to 30 June 2020.
2. It applies to the deferral of one quarters VAT ONLY.
3. The deferral will include any ONE quarter’s VAT as follows:
a. Q/e 29.2.2020 – VAT due on 7 April 2020
b. Q/e 31.3.2020 – VAT due on 7 May 2020
c. Q/e 30.4.2020 -- VAT due on 7 June 2020.

Monthly VAT returns - similar to above dates.

That's it.

Thanks (2)
Replying to brumsub:
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By keith knowles
30th Mar 2020 15:28

Thanks brumsub, I think that clear's it up perfectly.

This could though create another problem as struggling businesses might have to find funds after coming out of the crisis and a winter's trading.

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Replying to brumsub:
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By bendybod
01st Apr 2020 11:07

That's helpful, although I am sure it will get extended unless there's a dramatic change in the situation. Useful to be able to explain more clearly to clients though.

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By RM and Co
30th Mar 2020 10:30

Hi. I do not understand how we are supposed to submit the vat for clients when we are forced to close (as non essential) apart from that I would not dare getting any books and bags in through the door. How is that protecting myself and my staff?

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Replying to RM and Co:
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By rememberscarborough
30th Mar 2020 11:35

Given HMRC's insistence that VAT returns MUST be submitted this falls under the coverall as essential business travel so the client can drop them off at an agreed point. If you're worried about exposure on the books then just leave them for 72 hours in a cool/cold place so they're safe.

At this point just downing tools and sitting at home for three months is unacceptable. If there's a safe way to carry out business we have to do so to support everyone concerned and not just leave it to others. We all need to use our initiative to keep safe and keep working whenever and wherever possible.

I speak as someone who is in the office because we run the finance for a care company and those care workers and especially those who they care for need us more than ever.

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Easy MTD VAT
By EasyMTDVAT
30th Mar 2020 10:44

I think the "no consolidating in spreadsheets" implies that spreadsheets cannot be used in respect of Making Tax Digital for VAT, whereas they can be. Here's a reminder for the author and readers about what HMRC permits...

https://www.gov.uk/guidance/keep-digital-records-for-making-tax-digital-...

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By markabacus
30th Mar 2020 11:39

Hi
Re Which qtr's fall into the deferment period? My reading is the period relates to date the payment is due i.e. not the Qtr end date

Extract from .Gov:
If you’re a UK VAT registered business and have a VAT payment due between 20 March 2020 and 30 June 2020, you have the option to:
defer the payment until a later date
pay the VAT due as normal

Good point being made re Vat rtns still be submitted. Whilst my wife & I work from home, part time employee on holiday for now, getting the paperwork is the challenge.
Keep safe
Mark

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Replying to markabacus:
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By keith knowles
30th Mar 2020 12:08

Hi Mark,
But the May quarter can be paid by 7 July therfore is this outside the deferment period or is the due date the 30th June and 7th July is an extension hung over from the intoduction of the online VAT filings?
Its not clear from the guidance.

KK

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Replying to keith knowles:
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By richard thomas
30th Mar 2020 14:33

By regulation 40(2) of the Value Added Tax Regulations 1995 (SI 1995/2518) VAT in respect of a period to which a return relates (ie the quarter in most cases) is payable to HMRC not later than the last day on which the trader is required to make the return.

By regulation 25(1) ibid. a return is required to made to HMRC not later than the last day of the month next following the end of the return period, ie 30 June 2020 in the case of a quarter ended 31 May 2020.

30 June 2020 is therefore the date on which the VAT for the quarter is payable, but this is subject to the provisions of regulation 25A(20). This provides that additional time is allowed to make a return in two circumstances:

1. where payment related to the return is made electronically (whether or not the return is made electronically or on paper)

2. where the return is made electronically (so not paper) and no payment is required to be made.

But this additional time to make the return (and hence to pay) only applies where HMRC (or its predecessor) have so directed. The most recent copy of the directions I have provides:

“Additional time may be available for the return and payment to reach us if payment is made by an approved electronic method. To qualify:
• Payment by BACS, Bank Giro Credit Transfer or CHAPS must be in our bank account by the seventh calendar day after the standard due date.
• DD payments will not be collected for a further three working days after the extended due date for receipt of the VAT Online return. 

• [HMRC] must receive paper VAT returns by the date the payment is due. Electronic returns must be received by the seventh calendar day after the standard due date. 

These incentives apply only if there is a payment to be made of VAT declared on the VAT return. 

They do not apply to: 

• ‘nil’ or repayment returns 

• returns under the annual accounting scheme 

• returns made by businesses required to make payments on account.”

It is wholly unclear to me from the HMRC website which quarters they intended to be included in the deferral scheme. It would seem odd and unfair if those with February quarter ends got another quarter of deferral (the May quarter) while those with March and April quarter ends got only one. The reference in the direction to nil returns not qualifying suggests that it is HMRC’s view that a return which shows or should show an excess of output tax over input tax (if any) will qualify for additional time to make the return, because it is not a “nil” return) and so the May quarter end cases are not within the deferral scheme. But that of course is HMRC’s statement of the cases that will not qualify. It is not necessarily exhaustive as the direction must be construed to be consistent with the regulations.

Those with May quarter ends who wish to defer payment will find themselves in the odd position of having to argue that they are not entitled to the additional 7 days to make a return. I do not think that they can argue that no payment is “required” to be made (item 2. above), as regulation 40 requires a person to account for the VAT for which he is accountable and to pay it.

They might argue that where the payment of VAT has been deferred (eg by cancelling the direct debit and not making any other payment), no payment “is made”, so that they are not entitled to the additional time to make the return.

Anyone taking that view would be well advised to make their return by 30 June or they might get a surcharge liability notice or surcharge. What a judge of the FTT would make of the argument should HMRC issue a surcharge in July I would not like to say.

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Replying to richard thomas:
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By keith knowles
30th Mar 2020 15:40

Thanks you Richard,
I agree that it would appear unjust for those who are about to submit a return might get another chance with their next return to 31 May 2020. I think HMRC could have made life easier if they'd specifically outlined which returns and payments qualify for deferment. Using the specific date of 30 June 2020 gives an impression that payments due by that date apply yet none do as the last one would appear to be payments up to 7 June 2020. Many traders still think that there is one month to submit and pay a return and they might then live in a false hope that they will have nothing to pay at the moment regarding the return to 31 May 2020.

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Easy MTD VAT
By EasyMTDVAT
30th Mar 2020 13:05

A link to a source for this would be nice...
"HMRC has now postponed phase two of Making Tax Digital for VAT. This means the rules on maintaining digital links from original transaction to tax return will not be enforced until 1 April 2021. Businesses now have until their first VAT return period starting on or after 1 April 2021 to put digital links in place."

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By lawmindmaps
30th Mar 2020 18:21

It could be nothing, but the Govt guidance on VAT deferral repeats "due to coronavirus"/"as a result of coronavirus". The guidance makes numerous mentions of "due to coronavirus (COVID-19)" and "as a result of coronavirus".

Is the Govt saying there needs to be a causal link to the wish to defer? Will business have to justify their deferral? Could there be penalties for not causally linking the deferral to COVID-19?

In fact I've also noticed similar conditional words incorporated into the updated guidance to businesses re the "income tax" deferral, now referred to as the "self-assessment deferral".
This seems to have been updated literally within the last hour minutes or so as I've been working on it.

Originally:

the heading was "Support for businesses through deferring Income Tax payments" and the detail was simply "For Income Tax Self-Assessment, payments due on the 31 July 2020 may be deferred until 31 January 2021."

(NB: no mention of a condition re Covid-19 impact)

Updated version (which seems to be last hour, but still has "Updated 26 March 2020" at time of writing):

The heading is changed to "Support for businesses through deferring Self-Assessment payments on account" and the detail says "If you’re due to pay a self-assessment payment on account by 31 July 2020 but the impact of the coronavirus causes you difficulty in making payment by that date, then you may defer payment until January 2021."

Then there's what looks like a means testing: "If you are still able to pay your second payment on account on 31 July you should do so." Won't "should" mean "must"?

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