Independent VAT Consultant
Columnist
Share this content

VAT: Holiday payment window snaps shut

Businesses need to pay VAT on the normal due dates from 1 July. Neil Warren discusses how advisers can assist clients who will struggle to pay HMRC on time.   

19th Jun 2020
Independent VAT Consultant
Columnist
Share this content
Calendar
istock_kwangmoozaa_aw

The VAT payment holiday window ends on 30 June, and normal service resumes from 1 July. What should you do if your clients can’t pay the VAT due by 7 July, for their May VAT return because of the impact of Covid-19 on their trading situation? The good news is that a sympathetic ear and time to pay agreement may be available from HMRC.

Payment Support Service (PSS)

The priority is to contact the PSS at HMRC before the VAT is legally due for payment. Any time to pay agreement won’t then be subject to a default surcharge. Before you call the PSS, make sure you have the client’s VAT number and bank account details to hand. Also be clear about the amount of VAT that is outstanding and your proposals to settle the arrears.

The HMRC officer you speak to will also require details about why you cannot pay on time. A partial payment on time will score brownie points, rather than asking for all of the liability to be deferred.

Contact details for the PSS: 0300-200-3835, open 8am to 4pm Monday to Friday.

Example

ABC Clothing has been selling goods online since the Covid-19 lockdown started and owes £12,000 on its May 2020 VAT return. However, the company has had to spend £9,000 on its shop premises to comply with social distancing and arrange screens for cashiers, before its shop reopened for business on 15 June. This was an unexpected bill due to the virus.

The company has asked if it can pay £3,000 of the VAT on time, with the balance paid at the end of August and September in equal instalments of £4,500 each. The proposal is likely to be accepted by HMRC in the current climate.

More time

It is tempting for clients to ask advisers: “What is the maximum time HMRC will let me have to pay?” This is the wrong approach; the client needs to establish how much he can afford to pay and when, then justify that time period to HMRC. There is no fixed “going rate” period that HMRC allows.

Reasonable excuse

The concept of reasonable excuse has always been a key part of the VAT system. It has been the subject of many tribunal hearings over the years because it is not clearly defined in law. In the VAT world, it is relevant when a business has missed a deadline, eg filing a return, registering for VAT on time, paying tax or replying to an information notice.

The HMRC guidance on reasonable excuse now includes a paragraph that is specific to the impact of the virus: “HMRC will consider coronavirus as a reasonable excuse for missing some tax obligations (such as payments or filing dates). Explain how you were affected by coronavirus in your appeal. You must still make the return or payment as soon as you can”.

Extra three months to appeal

More good news is that taxpayers notified of any HMRC decision that is dated February 2020 or later will be given an extra three months to appeal the decision if they think it is wrong.

For example, an officer’s VAT assessment raised on 31 March and subject to a 30-day appeal deadline, must be appealed by 31 July rather than by 30 April. This appeal extension recognises that many businesses might not have been able to appeal while key staff was working remotely.

Cashflow

If any of your clients have taken advantage of the VAT holiday payment window, and pay their dues by direct debit, don’t forget that they must reactivate the direct debit mandate with their bank after 30 June.  Any cashflow projections need to include the 31 March 2021 deadline for settling the VAT deferred during the payment holiday window. 

Replies (4)

Please login or register to join the discussion.

avatar
By booksy
24th Jun 2020 10:24

Neil I was under the impression that only the client could do this?

Thanks (0)
Replying to booksy:
avatar
By Di
24th Jun 2020 12:48

I've been able to negotiate time to pay on behalf of client, but the Revenue do like a dd set up so you require authority.

Thanks (1)
Replying to Di:
avatar
By booksy
24th Jun 2020 15:48

Thanks Di. I have the 64-8 but will i need then an additional authority from client to set up a dd? I suppose I will have to bite the "unpaid" bullet and ring both the client for all their details and circumstances, get written authority and then ring HMRC. But how will HMRC know I have authority to set up a dd?

Thanks (0)
Replying to booksy:
avatar
By Di
24th Jun 2020 16:23

They just accepted it verbally from me! I have found that it usually depends on who you get to speak to. Another way I have negotiated the time to pay is to phone and arrange the payments then the client has to phone and provide the bank details.

Thanks (1)