Managing VAT in Unprecedented Times

I wanted to make some comments specific to VAT in addition to our wider piece giving information and advice on managing cash in the current crisis. This can be found here.

A more general point to start however, is not to delay seeking help and support as in some cases there are additional steps before you can access it. We’ve learned, for example, that despite government guidance suggesting the two business rates grant funding schemes, the Small Business Grant Fund and the Retail, Hospitality and Leisure Grant will be automatically processed, at least one local authority (BANES) requires businesses to register to apply for the grants.

Returning to VAT. The option to defer VAT payments due between 20 March and end June 2020, until 31 March 2021 is very welcome, but don’t forget to cancel any DD if you wish to take up this option.

Other VAT cashflow matters for businesses to consider include:-

• checking whether all claimable input tax, with a tax point within the current VAT period, is claimed on your VAT return, even if the invoice is not fully processed through your accounting system. (But ensure the VAT isn’t claimed again in the following period!)
• whether cash accounting would be of benefit, if your business is eligible;
• whether you can issue proforma invoices or requests for payment rather than a tax invoice to delay the time when you must account for VAT.

Ensure any claims for overpaid VAT in past periods are lodged without delay. However, you should be realistic in your cashflow forecasts about how quickly HMRC will turn these round. HMRC’s resources are going to be stretched, and it was already slow in processing Error Correction claims, pre-crisis, and we are looking at how we can expedite current claims.

UPDATE - We asked HMRC’s Policy section if, during the current crisis, claims could be added to VAT returns, even where this would breach the normal £10,000 limit for adjusting returns. HMRC point out that this would require an amendment to the legislation, and may not be possible in a helpful timescale. However, HMRC has promised to improve its process for handling claims, including drafting in extra staff to process them, and undertaken to accept claims submitted by email.

If your VAT registered small businesses is now trading under the VAT deregistration threshold you need to think about the rules for accounting for VAT on any stocks and assets on hand before deregistering from VAT. Where the business owns assets subject to the Capital Goods Scheme, there may be further VAT to pay if it deregisters. It is possible that for some businesses, deregistration will not be the right option.

COVID-19 is also raising non-cashflow related VAT challenges for ongoing business operations and planning. Several clients are still proceeding with business acquisitions, and one consideration is whether a business acquired in a temporary shutdown situation is still the “Transfer of a Going Concern.”

Another client has cancelled an International Conference it holds in late Spring. It is now planning to run a webinar-based conference instead. Whether this is live and interactive may determine whether delegate fees are exempt from VAT, or whether VAT must be accounted for in several jurisdictions according to the B2C rules for electronic services.

Yet other clients, charities, education or financial services businesses for example, need to undertake partial exemption calculations to determine what VAT they can reclaim. Where these involve pro-rata calculations based on turnover or activity, temporary closure of certain operations (e.g. cafes or gyms in a residential block) may distort these calculations, and the scope for an Override notice should be considered.

Other challenges will no doubt arise as we work through the current unprecedented circumstances, and we’ll keep putting out updates.

Stay well.

To discuss you VAT queries further, please contact Steve Chamberlain on: 01225 472 800