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Managing VAT payments and cashflow

The Government has announced unprecedented measures that will help to relieve pressure on businesses affected by a slowdown in trade caused by the Coronavirus.

Many businesses have been told to close potentially for a few months and managing cashflow will be critical if they are to survive.

Government support for VAT-registered UK businesses

VAT payments due from 20 March until 30 June 2020 can be deferred automatically. There is no application required and businesses will be given until the end of the 2020/21 tax year to pay any liabilities that have accumulated during the deferral period. This effectively gives a VAT payment deferral for one quarterly VAT return (or three-monthly VAT returns). However, VAT returns must still be filed during the deferral period.

Note, that it is vital that if you pay your VAT liability by direct debit, that you cancel the direct debit to take advantage of the payment holiday.

For those businesses currently making VAT payments on account, they should be preparing to adjust or cancel any payments due to be made during the deferral period. However, full details of how the deferral arrangements will work have not been made available. HMRC (as of 23 March) has said: “We are working through the details of the Chancellor’s announcements and will advise businesses as soon as we can.”

However, HMRC has confirmed that VAT repayment returns, and other refund claims will continue to be paid as normal. Therefore, if you are in a VAT repayment position, your VAT returns should be filed as quickly as possible after the quarter- (or month-) end to improve cashflow. If you anticipate being in a regular repayment position, consider switching to monthly VAT returns.

There have been no specific announcements on what happens if you are unable to file your VAT return due to illness or having to self-isolate. However, given the approach by the Government so far, we expect that the normal mitigation rules will be applied. During the deferral period, since payment of VAT is not required, there shouldn’t be any penalties or interest accruing. For defaults not covered by the deferral arrangements, businesses should be prepared to make a case for reasonable excuse where unavoidable and unforeseen circumstances have led to the default.

Good housekeeping to improve cashflow

There are also some general measures businesses should be considering to ease VAT cashflow:

  • During the deferral period try to ensure that all sales invoices are issued promptly and declared in the VAT period to be deferred, as payment will not be required until March 2021. Conversely, if you can delay large purchase invoices until after the deferral period, you can offset the input VAT against liabilities that will be due to paid immediately after the deferral period.
  • After the deferral period, it may also be possible for businesses such as property landlords, leasing companies and others making ‘continuous supplies’ of services to consider issuing requests for payment instead of tax invoices and to delay accounting for VAT until they receive payment. Similarly, for significant purchases, consider the timing of the transaction and the actual invoice dates in relation to when your VAT period ends.
  • Something that is often overlooked, but could become more prevalent in the immediate future, is to review any bad debts and include the VAT claims in the next VAT return. A VAT bad debt relief claim can be made in any period that is within four-years-and-six-months from the due date of payment. Therefore, you may want to consider delaying the claim until after the VAT period that is eligible for the VAT payment deferral.
  • Finally, for businesses incurring VAT costs in other EU countries, try and file any refund claims as soon as possible rather than wait until the year-end.

Would you like to know more?

If you would like to discuss any of the above guidance or have other queries about how you can make the right decisions for the future of your business and your income, please contact your usual Blick Rothenberg contact or one of the partners to the right.

You can also visit our Coronavirus – Practical Guidance for businesses today Hub for our latest updates and insights.