UNITED KINGDOM: COVID-19 VAT IMPLICATIONS

Apr 1, 2020 | COVID-19

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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