VAT during these strange times

03 April 2020

In response to the damage to the economy caused by Covid-19, the Treasury has announced a number of VAT measures to help businesses. This is in common with many other countries who have introduced similar VAT measures to support their domestic economy and the global economy.

Summary of VAT reliefs

The measures include:

  • a payment holiday for VAT return payments for the period 20 march 2020 to 30 June 2020
  • a sympathetic approach to time to pay requests for other VAT return payments outside this period
  • waiving of Customs Duty and Import VAT on vital medical equipment including ventilators, Coronavirus testing kits and protective clothing which are crucial in combating the Coronavirus (COVID-19).

In respect of the payment holiday for VAT returns, there is no need to make an application to take advantage of the relief.  You should cancel your direct debit in case payment is taken automatically.

Taxpayers will be given until the end of the 2020 to 2021 tax year to pay any liabilities that have accumulated during the deferral period. VAT refunds and reclaims will be paid by the Government as normal.

At the same time compliance obligations remain in place.  Returns should be submitted as normal.

Communicating with HMRC

We are finding responses from HMRC are taking longer than normal which is to be expected with staff shortages. The phone lines are very busy.  Communication is complicated by the reduction in Royal Mail postal services which means even if a reply has been sent by HMRC it might take a while to arrive.

We are relying more on electronic correspondence with HMRC and this is proving effective.  There are some delays but HMRC are responding and individual teams, (for example Non Statutory Clearance), are working and replying albeit with some delays.

Looking ahead

We expect the measures introduced to be continually reviewed.  We also expect them to be extended as required.

In the normal course of events penalties applied by HMRC can be severe but are normally mitigated through ‘reasonable excuse’.  It is extremely unlikely HMRC will pursue any penalties arising from defaults due to the health emergency.  Penalties may be issued automatically if they apply to areas outside the specified reliefs, but if so these are likely to be removed on challenge by taxpayers.

Making Tax Digital

HMRC has deferred by one year the deadline for businesses reporting under Making Tax Digital (MTD) for VAT, to meet the requirement to have ‘digital links’ within their recordkeeping for transferring information from Excel spreadsheets and other data sources to their online VAT filing.

Summary

The VAT relief measures were introduced with unprecedented speed.  The UK’s use of these measures is consistent with other countries.  The measures provide invaluable support for the UK economy.  We expect the measures will be extended if the emergency period is more protracted than is hoped.

If you have any questions please contact one of our experts who will be able to help.