The Chancellor confirmed nearly half a million businesses have deferred more than £30 billion of VAT this year. This is the equivalent of 1.5% of GDP. Businesses were encouraged to make payments before March 2021 to reduce the cash flow issue of finding the full amount at that time. However, today Rishi Sunak announced that businesses will be allowed to spread that VAT bill over 11 smaller repayments, with no interest to pay.
In addition, any of the millions of self-assessed income taxpayers who need extra help can also extend their outstanding tax bill over 12 months from next January.
This is a prudent approach. While it clearly will help cash flow for businesses, it also increases the likelihood of the Treasury receiving the better part of the £30 billion VAT owed to it.
The question has always been if a business cannot afford to pay its VAT now, how can they afford a payment in March 2021? There is also the risk of abuse of the scheme. By spreading the payments, it makes it more likely businesses will repay the VAT owed, much of it collected from their customers who actually paid the VAT to the business. This is effectively a significant interest fee loan to businesses of government money. These new steps to ensure it is recovered are sensible, whilst at the same time helping cash flow during these unprecedented times.
Businesses did have the option to reach Time to Pay agreements with HMRC if they could not make payment of taxes in full and it was stated these applications would be sympathetically considered. However, our experience is this is not always the case. By automatically allowing what is in effect a payment plan for the deferred VAT, this overcomes this issue and reduces administration costs. It does, however, allow businesses that could have made full payment a further deferral period.
If you are struggling to pay your taxes you should contact HMRC and discuss time to pay options. Ignoring the problem is only likely to result in penalties and other costs at a later date.
If you need assistance in dealing with HMRC, please do not hesitate to contact your usual UHY advisor or contact us here.
