A guide to deferring VAT and Income Tax payments

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Assistance in safeguarding businesses’ cashflow by deferring VAT and Income Tax payments was announced on 20 March.  The measures, which provide support through the tax system, will benefit all VAT registered businesses, employers and the self-employed.  There are also other practical steps businesses should think about to improve their tax cashflow.

Deferral of the next quarter of VAT payments

VAT payments due between 20 March 2020 and 30 June 2020 (with the exception of payments of VAT due under the ‘Mini One Stop Shop’ for services) will be deferred. No VAT registered business will have to make a VAT payment normally due with their VAT return to HMRC in that period; nor will monthly payments on account (for those taxpayers whose VAT liability exceeds £2.3m in a year) falling due in this period need to be paid.
This is an effective nine-month interest free loan to businesses which normally make VAT payments to HMRC.  The VAT due will have to be paid at the end of the 2020/21 tax year.

Deferral of income tax payments due in July 2020

Under the Self Assessment system, the income tax payments due by self-employed businesses in July 2020 will be deferred to January 2021.

Are these measures in addition to the Time to Pay scheme previously announced?

Yes. For taxpayers who wish to take advantage of the VAT deferral, this announcement goes much further than the Time to Pay (TTP) scheme and is likely to be more advantageous.

Do I need to seek HMRC’s agreement to these deferrals?

No. These measures apply to all businesses which would otherwise find themselves having to make such payments.

What if I pay VAT by direct debit?

HMRC may provide further guidance in the coming days but businesses are advised to cancel their direct debit mandate and remember to set it up again in due course.

Does this mean that I need not file my tax returns in the normal way?

No.  This is simply a cashflow measure designed to provide additional financial support to businesses.  Compliant returns will still need to be submitted in the usual way.  Indeed, repayment traders will need to file their VAT returns in order to secure their VAT repayments in a timely way. 
It is timely to remind businesses that there are steps which can be taken in the process of preparing VAT returns which can assist business cashflow and it will be worth ensuring that your business has optimised its VAT recovery position or deferred VAT due as permitted.

What other tax cashflow measures can I take?

The deferrals in tax payments outlined above will be welcomed by businesses managing the cashflow difficulties brought about by coronavirus in the short term.  For businesses seeking to maximise VAT recoveries in the next nine months, and for all businesses with cashflow constraints thereafter, there may be other measures that will help even further. 

VAT cashflow measures to consider

  • Businesses should consider:
  • Filing VAT repayment returns earlier
  • Ensuring VAT bad debt relief is being claimed
  • Recovering VAT on purchase invoices as soon as permissible
  • Deferring output VAT due on certain supplies until payment is received from the customer
  • Selecting the most favourable VAT return stagger
  • Use of VAT grouping to minimise cashflow costs on inter-company supplies. 

Corporation Tax cashflow measures to consider

While no specific measures have been announced in respect of companies’ corporation tax liabilities other than  TTP, companies which pay their corporation tax by quarterly instalments should reassess their likely tax position for the relevant accounting period and revise downwards their upcoming quarterly payment if their expected liability is lower than originally anticipated. 
Where quarterly payments made to date are expected to exceed their total liability for the accounting period in question, there is a process whereby they can apply to HMRC for refunds in certain circumstances.