UNITED KINGDOM: COVID-19 VAT IMPLICATIONS

Apr 1, 2020 | COVID-19

UNITED KINGDOM – Update 14th July

Temporary rate reduction, VAT for hospitality and tourism sector

The UK will introduce a temporary reduced rate of 5% of value added tax (VAT) on certain supplies, aimed at helping the hospitality and tourism sectors that have been affected by the coronavirus (COVID-19) pandemic.

 The UK Chancellor’s summer statement announced a targeted reduced rate of VAT would be introduced to provide relief for certain sectors affected by the COVID-19 pandemic.

The subject supplies—currently subject to VAT at a standard rated of 20%—would be subject to the new rate of 5% effective from 15 July 2020 to 12 January 2021. The types of supply subject to the 5% rate of VAT include food and non-alcoholic drinks consumed in restaurants, pubs, bars, cafés and similar premises across the UK and hot takeaway food and non-alcoholic drinks by those suppliers. The reduced rate of VAT will also apply to supplies of hotel and holiday accommodations and admission to attractions across the UK.

 

Source Credit – KPMG

 

UNITED KINGDOM – Update 10th July

Theatres eligible for Sunak’s VAT reduction

The government has announced that VAT for theatres and circuses will be reduced from 20% to 5% until January 2021.

 

Source Credit: thestage.co.uk

 

UK gov slashes VAT on concerts

Another #LetTheMusicPlay objective fulfilled, as British chancellor Rishi Sunak announces a 15% reduction in value-added tax on live events until the end of the year

The British government has announced that value-added tax (VAT) levied on concert and event tickets will be reduced to 5% from next week.

 

Source Credit: iq-mag.net

 

UNITED KINGDOM – Update 9th July

UK reduces VAT on hospitality (food & non-alcoholic drinks) and tourism (accomodation & attractions) to 5% as of July 16, 2020 till Jan 12, 2021

The UK hospitality sector has been adversely affected by the Covid restrictions. An industry with 2 million employees has seen 1.4 million of them furloughed. To kickstart this from July 15 until January 12 next year VAT will be reduced from 20% to 5% for the Hospitality & Tourism industries.

This includes on:

  • Accommodation; hotels, B&B’s, campsites, carvan sites
  • Catering, i.e, eat-in & hot take away food from café’s, restaurants and pubs
  • Attractions, themeparks, cinemas and zoos
  • & More, presumably museums, theatres and music venues to (although still closed, but there are plans to allow open air events)

 

Source Credit – bbc news

 

UNITED KINGDOM – Update 6th July

HMRC extended the temporary zero rating on PPE for a further three months, now ending 31 Oct 2020

 
Source Credit – HMRC
 

UNITED KINGDOM – Update 24th June

VAT cut: Why Rishi Sunak is considering slashing the sales tax rate – and how the change could help the UK economy

The Treasury is considering cutting VAT to inject cash into the economy as the UK emerges from the coronavirus lockdown, according to reports.

Rishi Sunak, the Chancellor, has told Treasury officials and HMRC to reduce the tax made on sales from its headline rate of 20 per cent to encourage consumers to buy goods and services,.

The VAT on some items could be cut to zero. It would be the first time that VAT has been reduced since January 2011.

Why is Rishi Sunak considering the move?

Mr Sunak is reported to be considering a temporary cut to VAT and further, specific reductions for some sectors.

The hard-hit hospitality sector is expected to receive special relief to help pubs, restaurants and hotels as they reopen.

Mr Sunak is considering the move after pressure from Tory MPs, The Sunday Times reported.

The Treasury refused to confirm these reports on Monday. A spokesman said: “We do not comment on speculation and further measures will be set out ahead of summer recess.”

A cut in VAT, though it might provide temporary relief, would mean less funding for the exchequer in the long run. This may result in tax rises and lower public spending in the autumn budget.

How will it work in the UK?

Cuts in VAT rates effectively lower the price of goods and services for the consumer, while reducing the amount of money that goes to the Treasury.

They are meant to encourage consumers to spend more of their money at times of uncertainty.

It is not the first time that a UK chancellor has cut VAT to get the economy moving.

During the financial crisis of 2008, Labour chancellor Alistair Darling cut VAT from 17.5 per cent to 15 per cent. The decision to cut rates was taken in December 2008, and the reduced rate was maintained until until 2010, when Mr Darling returned it to 17.5 per cent.

In 2011, under the Conservative and Lib Dem coalition government led by David Cameron and Nick Clegg, the Treasury raised the rate by 2.5 per cent to 20 per cent and it has stayed at that level ever since.

How does a VAT cut affect the budget?

VAT now makes up 3 per cent of all taxes raised by the Government, almost more than National Insurance Contributions, and the second largest source of tax revenue after income tax.

While VAT has risen twice since 2008, the rate of corporation tax has been cut by nine per cent over ten years, to the current rate of 19 per cent.

This means that consumers shoulder a bigger tax burden as a share of government income. This can disproportionately affect those on lower incomes, who have no choice but to spend a bigger proportion of their household budget on tax.

Who is calling for the change?

Alistair Darling, the former Labour Chancellor, has urged the government to consider cutting VAT to 15 per cent like he did during the 2008 financial crisis.

Such a measure is anticipated to cost £35bn in lost government revenue.

However the former Conservative chancellor Sajid Javid said that the Treasury should think about cutting VAT by three points to 17 per cent, costing £21 bn, The Guardian reported.

Several sector bosses have added to the impetus for a VAT cut in recent days.

Helen Dickinson, chief executive of the British Retail Consortium, has said that cutting VAT for low earners would “boost consumer demand and raise consumption”, according to a letter seen by The Financial Times.

 

Source Credit – inews

 

UNITED KINGDOM – Update 24th June

HMRC Issues Revenue and Customs Brief on Delayed VAT Repayments to Overseas Businesses Due to COVID-19

UK HMRC has issued Revenue and Customs Brief 9 (2020), regarding a delay in VAT repayment to overseas business due to the impact of COVID-19.

Revenue and Customs Brief 9 (2020): delayed VAT repayments to overseas businesses

1. Purpose of this brief

This brief informs overseas businesses that are not established in the EU of the current delay in processing and refunding VAT claims submitted under the Overseas Refund Scheme. The affected claims are those within the prescribed year 1 July 2018 to 30 June 2019, submitted on or before 31 December 2019.

The brief also sets out what businesses need to do if they are unable to obtain a certificate of status for the prescribed year 1 July 2019 to 30 June 2020.

2. Who should read this brief

You should read this brief if you are:

  • a non-EU business
  • an agent acting on behalf of a non-EU business
  • a body or association representing the interests of businesses and advisers in relation to international VAT
3. Background

On 23 March 2020, the government advised working from home wherever possible. In line with the government’s guidelines, HMRC has had to balance the need to keep our usual services running with that of ensuring a safe working environment for our staff. This has affected some of our operational processes, including the processing of overseas VAT reclaims.

As set out in VAT Notice 723A, paragraph 6.6, HMRC’s objective is to process and refund overseas VAT claims within 6 months of the submission deadline of 31 December.

Due to the impact of coronavirus (COVID-19) and the changes HMRC have had to make, we are unable to meet this deadline for some of the 2018-19 claims.

4. Next steps

HMRC has put structures in place to allow us to continue to deliver services and process claims as quickly as possible. We expect to pay valid 2018-2019 claims by 30 September 2020.

HMRC will write to you if your VAT claims will not be paid by 30 September 2020 either because further information is needed or for any other reason.

5. Claims for 1 July 2019 – 30 June 2020

HMRC are aware that some overseas businesses or their agents and advisers may not be able to obtain the required certificate of status from their official issuing authorities due to measures taken by jurisdictions in response to coronavirus.

If you’ve submitted your VAT refund claim without a certificate of status, your claim will not be rejected but it will be put on hold until 31 December 2020. This is the deadline for submitting your application for VAT refunds and all the required documents, which include the certificate of status.

If, in these circumstances, you are not able to obtain the relevant certificate of status by 1 October 2020, write to us to let us know and we will consider the specifics of your case.

If you are likely to make a claim before 31 December 2020, you should request a certificate of status as early as possible.

 

Source Credit – Orbitax

 

UNITED KINGDOM – Update 22th June

Businesses urged to reinstate VAT direct debits

Business have been reminded to reinstate their direct debit mandates before the deferral of VAT payments due to the coronavirus (COVID-19) comes to an end on 30 June.

The VAT payment deferral means that all UK VAT-registered businesses have the option to defer VAT payments due between 20 March and 30 June 2020 until 31 March 2021.

However, businesses need to take steps to reinstate their direct debit mandates so that they are in place in time for payments due from July 2020 onwards. Any outstanding returns should be filed and three working days should be allowed to elapse before reinstating the direct debit mandate.

The Tax Faculty at the Institute of Chartered Accountants in England and Wales (ICAEW) said: ‘HMRC has confirmed to the Tax Faculty that it will not collect the outstanding balance of deferred VAT when the direct debit mandate is reinstated. HMRC has made the necessary systems change to avoid this happening for businesses in Making Tax Digital for VAT (MTD for VAT).

‘Arrangements will also need to be made to pay the deferred VAT by 31 March 2021; further guidance is awaited from HMRC on the mechanism.’

 

Source Credit – Bournerbullock

 

UNITED KINGDOM – Update 22th June

VAT payment deferral period ends on 30 June 2020

Temporary changes to the VAT payments due between 20 March 2020 and 30 June 2020 to help businesses manage their cash flow.

The VAT payment deferral period ends on 30 June 2020. This means you’ll need to:

  • set-up cancelled direct debits in enough time for HMRC to take payment
  • submit VAT returns as normal, and on time
  • pay the VAT in full on payments due after 30 June

Any VAT payments you have deferred between 20 March and 30 June should be paid in full on or before 31 March 2021. You can make additional payments with subsequent returns.

Contact HMRC:

  • if you are unable to pay the VAT due and may need time to pay as soon as possible and before the payment is due

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

HMRC will not charge interest or penalties on any amount deferred as a result of the Chancellor’s announcement.

VAT payments you can defer

You can only defer:

  • quarterly and monthly VAT returns’ payments for the periods ending in February, March and April
  • payments on account due between 20 March 2020 and 30 June 2020
  • annual accounting advance payments due between 20 March 2020 and 30 June 2020

The deferral does not cover payments for VAT MOSS or import VAT.

VAT repayments and returns

HMRC will continue to process VAT reclaims and refunds as normal and most repayments are paid within 5 working days.

Repayments will not be offset against any deferred VAT, but they will be offset against existing debts. You can apply online to move to monthly returns to improve your cashflow if you’re in a repayment position.

How deferring VAT affects payments on account

If you defer a payment on account between 20 March 2020 and 30 June 2020 but the balancing payment is outside of these dates, the amount you must pay is the balancing payment less any deferred payments. Deferring payments will not create a repayment.

You will still need to submit your VAT returns to HMRC on time.

If you choose to defer paying your VAT

If you choose to defer your VAT payment as a result of coronavirus, you must pay the VAT due on or before 31 March 2021.You do not need to tell HMRC that you’re deferring your VAT payment.

Payments made by Direct Debit

If you normally pay by Direct Debit you should cancel your Direct Debit through your bank as soon as possible so that HMRC will not automatically collect any VAT due. You can cancel online if you’re registered for online banking.

After the VAT deferral ends

VAT payments that are due after the end of the deferral period will need to be paid as normal.

 

Source Credit – gov.uk

 

UNITED KINGDOM – Update 16th June

UK to follow Germany with Covid recovery VAT cut?

Germany announced on 4 June that it was to slash its standard VAT rate from 19% to 16% from 1 July to 31 December 2020. Its reduced rate will also be cut from 7% to 5%. This will cost Germany €20bn.

This is the first major global attempt at fiscal easement to stimulate consumer demand. It signals policy moving into a new phase as governments attempt to deal with the rapidly moving health and resulting economic crises. These phases can be summarised as follows – with Germany’s VAT cut falling into number three:

1. Emergency: Immediate employment and welfare support to prevent an economic and social collapse. In the UK, this included the furlough employment scheme.

2. Containment: Keeping the economy on life support during the lockdown. This includes continuing refinements and rollovers to the initial emergency measures. This could include an extension to the VAT payment deferral which ends this month.

3. Recovery: Stimulus to accelerate the restart of consumer and business economic activity as the lockdown is eased.

4. Fiscal Consolidation: The long journey to paying down the massive expansion of government health and welfare crisis debts. The heavy lifting on this will fall to taxes. Another round of austerity after the last decade’s is off the table given the continuing health and welfare costs of a seemingly prolonged pandemic. As billions of pounds are at stake, there will have to be a wholescale re-imagining of tax policy. Measures likely to appear may include: VAT on financial services; a carbon import tax; full implementation of digital taxes; wealth taxes; and a land-use tax.

The UK could cut its standard VAT rate down as low as 15%, with a 5% reduced rate reclassification for hard-hit restaurants, cafes and hotels.

As the UK exits the lockdown phase of the pandemic and faces up to the economic crisis, it will require seismic fiscal and welfare support to reignite consumer demand. But temporary VAT cuts – like the 2009/10 Labour cut to 15% – are of the worst type of measure with limited economic benefit and a colossal implementation headache for businesses. But the politics of grand gestures will overrule the logic of economics.

Supporting the hospitality and tourism sectors – UK is Europe’s laggard

The entertainment, hospitality and tourism sectors have been shut down around the world since March, and face a long, slow re-opening.

To recognise this hardship and threat to long term viability, many countries around the world have brought forward temporary VAT cuts to the hospitality sector. This includes cafes, restaurants, bars, catering, take-away food, amusement parks, cinemas, theatres, hotel, B&B and house-sharing accommodation.

Prior to last week’s announcement, Germany had already agreed a reduce VAT liability for sector by cutting its VAT classification from the standard 19% rate to the reduced 7% rate.

The UK is one of the very few European countries which does not provide a tax subsidy to the sector already via reduced VAT rates. It is second only to Denmark in terms of VAT liabilities on the tourism and entertainment supplies. In addition to a standard rate VAT cut for the whole economy, the UK may, therefore, reclassify hospitality to the reduced 5% rate as it will need confidence rebuilding as social distancing rules are relaxed.

Do crisis VAT rate cuts work?

Do temporary VAT rate cuts work for an economic crisis? Certainly, they can provide subsidies to retailers or consumers, depending on whether the retailer chooses to pass on the cut through price cuts.

Crucially, such a tax subsidy can be introduced within a few weeks and so deliver an immediate economic boost. There is conflicting evidence on the effects on prices, and whether retailers pass on the cut to retain it and prop-up profits.

Some studies on VAT rate changes have shown asymmetric movements on prices: cuts are retained by the vendor; rises are passed onto the consumer. But the Covid slump is not like previous recessions: supply chains on many goods have been devasted and so pricing changes do not have the same important economic signalling effect.

However, when the reduction is temporary it usually leads to expenditure switching as the reduction comes to an end and consumers bring forward spending. It is therefore important to give

as little notice as possible of any cut – despite the problems this creates for businesses in adjusting their accounting, billing and pricing strategies.

Politics may ignore the 2008/09 crisis cut experience

The UK Labour government temporarily cut VAT from 17.5% to 15% between 1 December 2008 and 31 December 2009. This emergency measure was implemented to support consumer confidence as the 2008 financial crisis gripped the country. It was estimated to cost around £12bn.

Shoppers canvassed at the time by a number of organisations overwhelmingly said it had no impact on their expenditure. Retailers, when surveyed, gave a similar response. Only 20% of them claimed to have not passed the reduction on.

Income tax or welfare payments instead?

Many economists believe a temporary cut in income tax is more effective than VAT rate reductions at delivering extra cash to individuals, especially if targeted towards the lower-income earners. However, changes to income tax rates take many months – up to a year to implement in payroll systems. The same problem applies to welfare payment increases.

But the attraction of action will probably ignore this economic sense, and the politics will likely lead to a VAT cut next month. It will be big, too. This is not a time for tinkering. Expect 15% VAT by September.

 

Source Credit – accountingweb

 

UNITED KINGDOM – Update 15th June

Brexit: UK backtracks on full EU border checks amid coronavirus crisis

Checks on EU goods coming into the UK will be phased in next year to give firms “time to adjust”, as ministers formally ruled out extending the Brexit transition period beyond 31 December.

 The UK had committed to introduce full import controls on EU goods in January.

But coronavirus has forced a rethink, with firms able to defer customs forms and tariff payments for six months and some physical checks delayed to July.

 Business welcomed what ministers said was a “pragmatic and flexible” step.

But, in response, the EU said it would implement full checks on UK exports at the start of 2021.

The BBC’s Europe editor Katya Adler said the EU would not see the UK’s move as a “concession but rather a pragmatic move by a country that’s not ready to implement full checks by then”.

 The UK left the European Union at the end of January, but the transition period – during which existing trading rules and membership of the single market and customs union apply – lasts until the end of the year.

 Opposition MPs have been pushing for it to be extended, with the Scottish and Welsh first ministers warning that exiting the current trading arrangements in just over six months time would be “extraordinarily reckless” given the economic damage and uncertainty caused by the coronavirus epidemic.

Ministers from the two devolved administrations withdrew from a scheduled conference call with UK ministers on Friday evening in protest at their decision to rule out a delay, saying their views had been “dismissed”.

 Earlier, Cabinet Office minister Michael Gove said he had “formally confirmed” to the EU that the transition period will not be extended, adding that the “moment” for such a move had “now passed”.

However, there will be an about turn, in the short term at least, on the checks carried out on imports.

 In February, Mr Gove said full import controls were “necessary” from 1 January to keep UK borders “safe and secure” and to collect the appropriate taxes.

 

Under the revised plan, checks on goods entering Britain will be phased-in in three stages up to the summer of 2021, regardless of whether a deal is done with the EU or not.

  • From 1 January, there will be checks on controlled substances, such as alcohol and tobacco, while standard goods, such as clothes and electronics, will be subject to basic customs procedures. But firms will have up to six months to complete customs declarations and pay relevant tariffs
  • From 1 April, those importing products of animal origin, including meat, milk or egg products, will have to pre-notify officials and provide the relevant health paperwork
  • By 1 July, all goods will be liable for relevant tariffs and customs declarations as well as full “safety and security” declarations. From this moment, there will be an increase in physical checks on livestock, plants and other sanitary and phytosanitary products at ports and other entry points

 New border facilities will be built in order to process the required checks either at ports, or where there is not enough space, at “inland sites”.

Ministers said they would consult with ports about what new infrastructure was needed and where it should be located.

The proposals only apply to rules on imports, with checks on exports to the EU being determined by Brussels.

 Mr Gove said the arrangements would be introduced in a way that gives businesses affected by coronavirus “time to adjust” but conceded “more work” was needed to ensure the UK was ready.

“From 1 January we will be outside the customs union and outside the single market so it’s appropriate we have checks on goods coming in to the UK,” he said.

“But it also appropriate that we take account of what’s happening with the coronavirus. And we want to make sure business has an opportunity to adjust in a pragmatic and flexible way.”

 Firms are expected to have to fill in 200 million extra customs declarations every year and industry experts have said an extra 50,000 customs officials will need to be hired to deal with the extra paperwork.

 Ministers have announced £50m in extra funding to support the new customs infrastructure, for IT systems and for recruiting and training new customs brokers and freight forwarders.

 Michael Gove was a prominent figure in the Leave campaign, and in charge of preparations for a no-deal Brexit. It was no surprise, then, that he announced in February that full border controls would be implemented at the end of the transition period.

 But now the new system will be “phased in” – with some companies having up to six months to complete customs declarations.

 The government maintains that this is a “pragmatic” way to help businesses which have struggled under the coronavirus yoke.

 But his critics say that it is a sign of Mr Gove’s dogmatism, not pragmatism – that he is determined to end, rather than extend, the transition period.

Critics in his own party are far more concerned about what they see as a lack of preparedness. Only today did the government commit to building new border facilities.

That, in itself, may be a further sign that trade talks with the EU are not making good progress.

A leading figure involved in the negotiations last week conceded that a completely tariff-free deal may elude them. And some say the government, practically rather than philosophically, isn’t yet fully prepared for the reality of life outside the EU.

 The Freight Transport Association said ministers had listened to its “concerns” while business lobby group, the CBI, said the move was “pragmatic and sensible”.

 “It will be welcomed by Britain’s manufacturing and food businesses, which simply aren’t ready for chaotic changes with our biggest trading partner at the end of the year,” said its deputy director general Josh Hardie.

 The CBI also welcomed news that Boris Johnson will meet the presidents of the European Commission, Council and Parliament remotely on Monday, as attempts to secure a trade deal with the EU are stepped up.

The negotiating teams have also agreed to “an intensified timetable” for July after the fourth round of negotiations last week failed to reach a breakthrough.

 

Source Credit – BBCnews

 

UNITED KINGDOM – Update 8th June

Opting to tax land and buildings – extension of time limit to notify HMRC

Once an option to tax has been made, it must be notified to HMRC within 30 days. However, this has been relaxed due to covid 19 and where a decision is made to opt to tax a property between 15 February 2020 and 30 June 2020, the time limit to notify HMRC is 90 days.

 

Source Credit – Deeks

 

UNITED KINGDOM – Update 5th June

Procedures where VAT returns have been paid in error

HMRC have recognised that some taxpayers have encountered problems when trying to take advantage of some of the COVID-19 measures, and have announced details of the procedure for taxpayers who have paid their VAT returns in error (e.g. direct debit not cancelled) when they meant to defer the payment under the COVID-19 VAT deferral easement.

The HMRC releases:

A refund can be claimed if a Direct Debit was not cancelled in time.

The quickest way for customers to claim a refund is to submit a Direct Debit Indemnity Claim to their bank. When doing so they must ensure they state they want to claim a refund under the Direct Debit Indemnity Scheme (DDI). There is no time limit in making this request.

If the customer wants a repayment from HMRC rather than contacting the bank, they must ensure that their bank details are updated using the online services. Due to COVID-19 restrictions, Payable Orders are not being issued.

To confirm, it may take 21 days for the refund to be received if the Direct Debit Indemnity Claim process is not used.

 

Source Credit – centurionvat.com

 

UNITED KINGDOM – Update 3rd June

Donated PPE & the Business Gift VAT rules

You may be familiar with the issue we have been raising on the VAT consequences when any type of VAT registered entity – business, charity, university or college – makes, buys in and then donates PPE or other goods to another entity. If the value ( at cost) exceeds £50 and any element of VAT recovery has occurred – whether partially or in full – on the related costs then the organisation making the donation has to account for VAT on the cost value of the donated goods. Suggestions have been presented to HMRC as to how to address the VAT cost that this would create especially for organisations such as universities who are, like many, already facing financial burdens following the lockdown, in having to pay VAT on a supply they donate to the NHS.

 HMRC has announced a temporary VAT Zero rate treatment which would remove this VAT cost on specific PPE items, but that still leaves the VAT liability on gifts to be accounted for in the period to the 30th April 2020 on the value of such donated PPE equipment. Whilst this VAT liability will remain, the Government has announced that the value of VAT collected by HMRC on donated PPE equipment will be donated back to NHS Charities by HMRC.

 “The Care Workers Charity and NHS Charities Together will benefit from the government donation, which is expected to be worth hundreds of thousands of pounds.

The government introduced a temporary zero rate of VAT on PPE on 1 May to reduce costs for care homes and businesses buying the essential equipment during the Covid emergency.

The amount to be donated to charity will reflect the VAT collected on donations made from 1 March until 30 April – the period between PPE donations starting and when the zero VAT rate became effective.”

 What is different about this scheme is that VAT registered bodies will have to notify HMRC as to the value of VAT that they have accounted for on these items in order for this donation to be made and there is a specific email address to which information on the value of VAT that has been accounted for should be sent. HMRC have given until the 30th June for the information to be submitted.

 

Source Credit – Centurionvat

 

UNITED KINGDOM – Update 25th May

Managing the impact of coronavirus on VAT recovery for charities

Coronavirus has resulted in many charities suffering a significant decline in revenues. Shops, theatres, historic homes, heritage sites and zoos have closed their doors, and fundraising events have been cancelled. But baseline operational expenditure is still being incurred, and most non-pay costs are subject to VAT at the standard rate. The current crisis could see irrecoverable VAT costs increase significantly. We recommend that charities build this reduction into their cash flow projections. However all is not lost. By being proactive and engaging with HMRC now, many charities should be able to mitigate this VAT cost.

 Recovery of VAT

VAT incurred on expenditure is only eligible for recovery where it relates to an onward VATable supply. Most charities undertake a range of activities, some of which are not in the course of business – for example free telephone helplines and others that fall within the scope of VAT such as admissions income, catering, and retail sales.

In order to determine how much VAT can be recovered, most charities have to undertake a three step process:

  1. Direct attribution.VAT on costs that are consumed wholly in undertaking:
  • Non business activities or exempt business activities is not eligible for VAT recovery
  • VATable business activities can be recovered in full.

VAT on expenditure that relates to more than one activity will in all likelihood then need to be apportioned by undertaking a:

  1. Business/non-business calculation. This determines how much of the VAT relates to business activities.
  2. Partial exemption calculation.This final calculation determines how much VAT relates to taxable business activities and is eligible for recovery.

Coronavirus will have a significant impact on steps 2 and 3. For example if you use an income based calculation at steps 2 and 3, the closure of  shops, venues etc will result in business income values being significantly reduced, which in turn may mean that in step 2 more VAT may be allocated to non-business activities, and less VAT will flow through to step 3.

If exempt income remains constant but taxable income levels reduce then less VAT will be recovered. This may also be the case if other methods of apportionment are used, such as expenditure values and transaction numbers.

 

Source Credit – RSM

 

UNITED KINGDOM – Update 14th May

Reminder to apply for Import VAT Payment Extension before 15th May

In the run up to the 15th April 2020 businesses who are importers of goods into the UK and who use a Duty Deferment Account were able to make an application to HMRC to agree an extension to the payment of that VAT liability. This relief has now been extended to include the next Import VAT payment date of the 15th May.

If you were an importer who made an application for a payment extension for the 15th April you should email the Central Deferment Office at cdoenquiries@hmrc.gov.uk. You should be clear that you are applying for a payment extension to the May 15th due payment due to the negative impact of COVID 19 and illustrate how the financial position of the business has remained under pressure or has worsened if that is the case. If your business can make the payment in full expected by the 15th May, you are unlikely to qualify for any extension to the payment terms.

If this is the first time that you are applying for an Import VAT deferral then contact the Central Deferment office at the same email address.

You will still be able to use your deferment account whilst the payment is extended but do take care not to default on any subsequent payment as HMRC may consider suspending the account.

We understand that HMRC will not be charging interest of these extended payment periods as long as they are paid in full by the dates agreed under the agreement.

It is important not to confuse this system to defer Import VAT payments with the general VAT Return deferral under which those VAT Return payments due in the period to the 30th June will be deferred to the 31st March 2021. The extended payment terms for the Import VAT may vary by individual business’s situation.

 

Source Credit – Centurionvat

 

UNITED KINGDOM – Update 7th May

Personal protective equipment (PPE): export control process

Information for economic operators who will temporarily need a licence to export PPE outside the EU, EFTA member states and certain other territories.

During the coronavirus (COVID-19) outbreak, anyone wishing to export personal protective equipment (PPE) to areas outside the EU, European Free Trade Association member states (Iceland, Liechtenstein, Norway, Switzerland) and certain other territories will temporarily need a PPE export licence.

This guidance sets out the exporting restrictions on PPE products and the export control process now in place, including how economic operators can apply for a licence.

 

Source Credit – Gov.UK

 

UNITED KINGDOM – Update 5th May

Deferral of VAT payments due to coronavirus (COVID-19) – Last update May 1, 2020

Temporary changes to the VAT payments due between 20 March 2020 and 30 June 2020 to help businesses manage their cash flow. 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

HMRC will not charge interest or penalties on any amount deferred as a result of the Chancellor’s announcement.

VAT payments you can defer

You can only defer:

  • quarterly and monthly VAT returns’ payments for the periods ending in February, March and April
  • payments on account due between 20 March 2020 and 30 June 2020
  • annual accounting advance payments due between 20 March 2020 and 30 June 2020

The deferral does not cover payments for VAT MOSS or import VAT.

VAT repayments and returns

HMRC will continue to process VAT reclaims and refunds as normal and most repayments are paid within 5 working days.Repayments will not be offset against any deferred VAT, but they will be offset against existing debts.

 How deferring VAT affects payments on account

If you defer a payment on account between 20 March 2020 and 30 June 2020 but the balancing payment is outside of these dates, the amount you must pay is the balancing payment less any deferred payments. Deferring payments will not create a repayment.

You will still need to submit your VAT returns to HMRC on time.

 If you choose to defer paying your VAT

If you choose to defer your VAT payment as a result of coronavirus, you must pay the VAT due on or before 31 March 2021. You do not need to tell HMRC that you’re deferring your VAT payment.

 Payments made by Direct Debit

If you normally pay by Direct Debit you should cancel your Direct Debit through your bank as soon as possible so that HMRC will not automatically collect any VAT due. You can cancel online if you’re registered for online banking.

 After the VAT deferral ends

VAT payments that are due after the end of the deferral period will need to be paid as normal.

 

Source Credit – Gov.UK

 

UNITED KINGDOM – Update 30th April

Import duty and VAT relief for certain medical equipment and materials

HMRC has announced a relief which allows for certain goods, including medical equipment, crucial to the fight against coronavirus, to be imported free of VAT and customs duties.

UK DUTY RELIEF FOR CERTAIN MEDICAL EQUIPMENT AND MATERIALS

On 30 March the UK Government announced import duty and VAT relief for certain medical equipment and materials relevant for coronavirus.  The relief can be claimed immediately by state and public bodies, as well as non-public bodies which are granted authorisation by HMRC. The relief applies until 31 July 2020.

No import VAT and customs duties are payable on specified goods imported for one of the following purposes:

  • for distribution free of charge to those affected by, at risk from, or involved in combating the coronavirus;
  • to be made available free of charge to those affected by, at risk from, or involved in combating the coronavirus outbreak, while remaining the property of the organisations importing them;
  • for donation or onward sale to the NHS;
  • goods imported by a disaster-relief agency for distribution free of charge, or to meet its own needs, during the coronavirus outbreak.

 The relief applies to imports of a specified list of items (customs codes) which includes, for example, protective equipment and clothing, disinfecting items, soap, paper towels and toilet tissue, as well as certain relevant medical devices or equipment for the coronavirus outbreak.

VAT on domestic supplies is not affected by this relief – suppliers must account for UK VAT on any domestic sale of the items. If goods stop being used by those affected by the coronavirus, and are instead loaned or hired to organisations not affected by the coronavirus, import VAT and duties become payable. Whilst the relief is a welcome measure to reduce the cost and import red tape, there are a number of areas where further clarification would be welcome.  These include the types of business included in those described as ‘affected by the conroavirus’ and whether it is possible to recover import VAT and duties already paid on goods imported say in February 2020, but given away in say April 2020.

 The EU Commission announced a similar measure which will allow public service bodies and approved charities to import similar goods free of VAT and customs duties. The EU measure allows for the relief to be backdated until 30 January 2020 and will also last until 31 July 2020, with possible extension. Specified goods imported with the aim of onward sale are included in the relief. The overall aim of the measure is to reduce the market price of those specified goods and allow for quicker border processing.

It remains to be seen whether measures announced by the UK Chancellor will be extended or clarified to ensure the UK relief can apply to imports made before 31 March 2020.  

 

Source Credit – Mazars

 

UNITED KINGDOM – Update 23rd April

HMRC urges businesses using VAT deferral to cancel direct debits

 

Businesses that have been affected by the COVID-19 pandemic and are seeking to make use of the VAT deferral have been urged to cancel their direct debits ‘as soon as they can’.

Businesses are advised to contact their bank to cancel their direct debits as soon as possible. UK VAT-registered businesses with a VAT payment due between 20 March 2020 and 30 June 2020 have the option to either defer the payment until a later date or pay the VAT due as normal.

A spokesperson for HMRC said:

‘For those customers who are unable to pay VAT due between 20 March and the end of June 2020, you have the option to defer that payment until 31 March 2021.

‘You will not need to apply for deferral as eligibility is automatic. Customers who normally pay by direct debit should cancel their direct debit with their bank if they are unable to pay. Please do this in sufficient time.’

The deferral does not cover VAT MOSS payments, and HMRC will not charge interest or penalties on any amount deferred. Businesses are still required to submit their VAT returns to HMRC on time.

 

Source Credit – Grant and Co

 

UNITED KINGDOM – Update 21st April

Jersey Defers Reduction in De Minimis Amount for GST-Free Import of Goods

The Jersey government has announced on 17 April 2020 its decision to defer the planned reduction in the de minimis amount for GST-free imports of goods in light of COVID-19. The reduction is deferred from July 2020 to January 2021.

GST changes to be deferred in light of Covid-19

Today, the Government of Jersey has announced that it will be deferring the changes to the “de minimis” level for paying GST on unaccompanied imported goods for personal use. This change is being deferred due to the Coronavirus pandemic.

The changes, outlined in the Government Plan 2020-23, were due to take place from 01 July 2020 and would see the value of goods which could be imported – mainly through the postal system – without paying GST drop from £240 to £135. However, the Treasury and Resources Minister, Deputy Susie Pinel, has decided that the change should be deferred to January 2021 to help manage the current pressures on hauliers, postal workers and customs officers.

The Minister for Treasury and Resources, Deputy Susie Pinel said: “Following discussions with the Agent of the Impot, it became clear that the degree of human intervention required to manage the reduced GST de minimis level by freight handlers; postal workers; and customs officers would be difficult to manage alongside all the other priority work now being undertaken by these organisations at this challenging time.” “I also recognise that it would not be appropriate to reduce the de minimis level at a time when people are increasingly reliant upon home deliveries.” “I have therefore decided to defer this change until January 2021.”

Treasury and Exchequer will release further information about the change to the de minimis level later in the year.

 

Source Credit – Orbitax

UNITED KINGDOM – Update 17th April

HMRC have announced that businesses who have a duty deferment account and who are in severe financial difficulty as a result of Covid-19 can apply to obtain an extension to the due date for payments which are due on 15 April 2020.
Following some confusion as to the extent of the 3 month VAT payment holiday put in place by the UK Government, HMRC have provided some welcome clarification on the application of the measures.
Finally, businesses must still make any payments due under the VAT Mini One Stop Shop Regime. This is VAT due to the Tax Authorities in other Member States; so the UK Government do not have control of these funds

 

Source Credit – Accordance VAT

UNITED KINGDOM – Update 15th April

Delaying Import duty/VAT payments as a result of COVID-19

 

Duty deferment account holders who are experiencing severe financial difficulty as a result of Covid-19 and who are unable to make payment of deferred customs duties and import VAT due on 15th April 2020 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. 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, in which case HMRC may consider suspending their account. The outstanding payment will not affect their duty deferment limit so they will not need to increase their guarantee to cover the outstanding payment. Where HMRC agree 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/import VAT payments not covered by a duty deferment account

Registered Importers who 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 on 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.

 

Source Credit – BIFA

UNITED KINGDOM – Update 14th April

VAT: Coronavirus latest – correction of errors

HMRC have announced that, due to coronavirus, it will no longer be accepting paper copies of VAT652s by post. If an error is discovered on a past VAT return it is necessary to report it to HMRC on form VAT652 if it is £10,000 (net of all errors) or more of VAT.

A business must now email its VAT652 form to HMRC.

A business can call to check HMRC has received its error correction notification if it has not had an acknowledgement after 21 days. Errors cannot be corrected over the phone.

This is said to be a temporary measure.

 

Source Credit – Marcus Ward

UNITED KINGDOM – Update 10th April

HMRC urges businesses using VAT deferral to cancel direct debits

Businesses that have been affected by the COVID-19 pandemic and are seeking to make use of the VAT deferral have been urged to cancel their direct debits ‘as soon as they can’.

Businesses are advised to contact their bank to cancel their direct debits as soon as possible. UK VAT-registered businesses with a VAT payment due between 20 March 2020 and 30 June 2020 have the option to either defer the payment until a later date or pay the VAT due as normal.
A spokesperson for HMRC said:

‘For those customers who are unable to pay VAT due between 20 March and the end of June 2020, you have the option to defer that payment until 31 March 2021.
‘You will not need to apply for deferral as eligibility is automatic. Customers who normally pay by direct debit should cancel their direct debit with their bank if they are unable to pay. Please do this in sufficient time.’

The deferral does not cover VAT MOSS payments, and HMRC will not charge interest or penalties on any amount deferred. Businesses are still required to submit their VAT returns to HMRC on time.

Source Credit – Grant & Co

UNITED KINGDOM – Update 8th April

VAT treatment of coronavirus grants

HMRC has announced that it will be providing assistance for the self-employed affected by coronavirus by way of support grants.

 Flat rate scheme (FRS) treatment

The FRS applies to all income received by a business (even exempt and zero rated) however, because the grant is not a supply for VAT purposes – because nothing is done in consideration for the payment, income from this source is not covered by the FRS. Consequently no output tax is due on the receipt of these payments and the value should not appear on VAT returns.

This is also the case for any businesses not operating the FRS.

Input tax

In either case, the receipt of a grant should not affect the businesses’ ability to recovery input tax.

 

Source Credit – Marcus Ward

UNITED KINGDOM – update 7th April

COVID-19: Clarification on VAT payment deferral

The Chancellor announced a VAT payments deferral on 20 March to support businesses with cashflow during the COVID-19 pandemic.

This means that all businesses with a UK VAT registration have the option to defer VAT payments due between 20 March and 30 June 2020. This includes non-established taxable persons. Businesses have until 31 March 2021 to pay any VAT deferred as a result of this announcement. HMRC will not charge any penalties or interest on payments deferred by this announcement.

Businesses do not need to inform HMRC if they wish to defer payments. They can opt in to the deferral simply by not making VAT payments due in this period. Businesses that pay by Direct Debit should cancel their Direct Debit with their bank (my emphasis – and it should read “must” not “should”)). This can normally be done online and should be done in sufficient time so that HMRC does not attempt to automatically collect on receipt of their VAT return.

Should they wish, businesses can continue to make payments as normal during the deferral period and can continue to make ad hoc payments after the deferral period to repay any deferred VAT up to 31 March 20201. HMRC will also continue to pay repayment claims as normal. Businesses must continue to submit VAT returns as normal. 

QUESTIONS AND ANSWERS

Q: What payments are covered by this announcement?

A: All payments of VAT to HMRC due between 20 March 2020 and 30 June 2020 can be deferred until 31 March 2021. This includes:

  • Payment for quarterly returns ending 29 February due 7 April,
  • Payment for quarterly returns ending 29 March due 7 May,
  • Payment for quarterly returns ending 29 April due 7 June,
  • Payment for monthly returns due in this period
  • Payments on account due in this period
  • Annual Accounting advance payments.

 

Q: Can I defer payment of Import VAT/Customs Duties as part of this announcement?

A: No, you must pay import VAT and customs duties in line with existing rules.

If you are struggling to pay your tax bill on time, HMRC is also delivering an enhanced Time to Pay offer to fit the specific impacts of COVID-19. Time to Pay is available to all businesses and individuals who are in temporary financial distress as a result of COVID-19 and are unable to pay their tax on time or have existing liabilities. HMRC has set up a dedicated helpline to enable those eligible to get practical help and advice which can be reached by calling 0800 024 1222.

 

Q: Does the deferral apply to other taxes/duties such as Machine Games Duty, Insurance Premium Tax, withholding tax etc.

A: No, unless covered by another Government announcement, you must pay all other taxes/duties in line with existing rules.

If you are struggling to pay your tax bill on time, HMRC is also delivering an enhanced Time to Pay offer to fit the specific impacts of COVID-19. Time to Pay is available to all businesses and individuals who are in temporary financial distress as a result of COVID-19 and are unable to pay their tax on time or have existing liabilities. HMRC has set up a dedicated helpline to enable those eligible to get practical help and advice which can be reached by calling 0800 024 1222.

 

Q: Does deferral apply to VAT due to be paid in relation to disclosures and assessments due to HMRC?

A: No, only VAT payments due alongside normal VAT returns between 20 March and end of June will be deferred. For any other debts HMRC’s Time to Pay system has been enhanced. Additionally, HMRC has a dedicated helpline for those who cannot pay because of COVID-19: 0800 024 1222. 

 

Q: Can I still make a VAT payment at my usual time?

A: Yes. The deferral is optional.

 

Q: My business needs more help than this, what other help is available?

A: HMRC’s Time to Pay system has been enhanced. Additionally, HMRC has a dedicated helpline for those who cannot pay because of COVID-19: 0800 024 1222.

 

Q: Will there be any changes to the VAT MOSS or EU refunds systems?

A: No, this announcement does not cover any payments or policies relating to the VAT MOSS or EU refunds system.

 

Q: What happens after the VAT deferral ends?

A: VAT payments due following the end of the deferral period will have to be paid as normal.

Businesses will be given until the end of the 2020-21 financial year to pay any VAT they deferred as a result of this announcement. Payments must be made on or before 31 March 2021.

 

Q: You’re deferring tax, not cancelling it altogether. We need a tax holiday. Isn’t this just another loan?

A: This will help alleviate the immediate, temporary pressures businesses are facing. We are confident the economy and businesses will bounce back from this in time. To help them do that, we will give them the time needed to pay back deferred tax. Businesses will have until the end of the financial year to make these repayments.

The government has also announced a comprehensive wage subsidy scheme. Tax deferral will help businesses with cashflow in the meantime.

HMRC is also delivering an enhanced Time to Pay offer to fit the specific impacts of COVID-19. Time to Pay is available to all businesses and individuals who are in temporary financial distress as a result of COVID-19 and are unable to pay their tax on time or have existing liabilities. HMRC has set up a dedicated helpline to enable those eligible to get practical help and advice which can be reached by calling 0800 024 1222.

 

Q: How will repayments work in practice, and will you offset repayments against VAT due? Can you make repayments faster?

A: Repayments will be paid as normal. This means that HMRC will offset repayments against any existing debt before this announcement but not against any VAT deferred through this announcement. Most repayments are paid within five working days.

 

Q: I am now in or going to be in a repayment position, can I move to monthly returns to improve future cash-flow?

A: Businesses, or their agents, can apply online to request to change to monthly VAT returns. Visit GOV.uk and search for “change VAT details.”

 

Q: I have made Time To Pay (TTP) arrangements with HMRC before the 20 March, can I defer payment until 31 March 2021?

A: For TTP arrangements made for payments due before 20 March 2020, you will need to continue to make these payments. If you are struggling to meet these obligations, then you can contact the dedicated helpline on 0800 024 1222.

 

For TTP arrangements made for payments due between 20 March 2020 and 30 June 2020 only, you can benefit from the ability to defer payment until 31 March 2021. You do not need to notify HMRC. You will need to cancel any Direct Debits set up for these arrangements.

 

Source Credit – Steve Botham (Covertax Chartered Tax Advisers)

UNITED KINGDOM – Update 31st March

  • HMRC’s guidance has been updated to confirm that the deferral scheme applies to any UK VAT registration number

Source Link here

Channel Islands

  • Jersey Tax Authorities to implement deferrals of payment of goods and service tax
  • The due date for the next VAT filings and payments is 15th April 2020

Source Link here

UNITED KINGDOM – Update 26th March

  • All VAT registered businesses are eligible to defer any VAT return payments that are due to HMRC between 20th March 2020 and 30th June 2020. Return payments can be deferred until the end of the 2020/21 tax year (5th April 2021)
  • The due date of submission for VAT returns during this period (stated above) will remain the same as usual

 

Source Link here

UNITED KINGDOM – Update 25th March

  • UK Government will defer VAT payments due between 20th March 2020 and 30th June 2020
    • VAT return periods affected by this measure include quarters or months ending:
      29th February 2020
      31st March 2020
      30th April 2020
      31st May 2020
  • VAT refunds and reclaims will continue to be paid by HMRC as normal.

 

Source Link here

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