HMRC offer option to defer VAT payments

HMRC published guidance on 26 March 2020 offering UK VAT businesses the option to defer VAT payments falling due between 20 March 2020 and 30 June 2020 until 31 March 2021. HMRC have brought the measure in to support businesses who have struggled with the impact of COVID-19

HMRC have also agreed not to charge interest or penalties on any deferred VAT payments. HMRC have also agreed that businesses who wish to defer their payments however, were unable to cancel their direct debit in time are now able to claim a refund.

What VAT payments can be deferred? 

You are only able to 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.

VAT payments that are due after the end of the deferral period will need to be paid as normal. 

How can businesses obtain a refund on their VAT payments?

There are two possible methods available for businesses to obtain a refund:

  • Indemnity claim via your bank – this method is the quickest way to receive a refund. Businesses have been encouraged to contact their bank for details of the relevant procedure to follow to make a direct debit indemnity claim as the procedure may vary between each bank. 
  • Repayment from HMRC – another method is to contact HMRC directly through the coronavirus helpline. Businesses should ensure that their bank details are updated using their online service. Due to COVID-19 businesses should also be aware that it may take up to 21 days to receive the refund. 

Businesses who think they will struggle to repay the deferred VAT at the end of the deferral period should get into contact with HMRC as soon as possible to explore the possibilities of agreeing a time to pay the arrangement.

What can I claim VAT back on?

You can only claim back VAT on services and goods that are used wholly and exclusively for your business, this could include: office supplies, transport costs and services such as accountancy as they are all used solely for the purpose of the business. If a supplier does not give you back a valid VAT invoice then in the majority of cases you will not be able to claim VAT back. 

If a service or good is used partially for the business and partially for home use, you may also still claim back a proportion of the VAT that is equal to the amount used by your business. An example of this could be home broadband. 

If you raise an invoice and pay VAT on the expected income however the invoice is not paid by a customer, this is considered bad debt. The VAT that has been paid on the invoice can then be claimed back from HMRC on your next return. Furthermore if the customer then later does pay the invoice the VAT can then be repaid then. 

How is VAT recovered?

VAT–registered business has the right to recover the VAT charged and therefore the recovery can be exercised before a supplier has been paid for the supply in question. 

To recover the VAT VAT-registered business must complete a VAT return for the period that is in question. VAT returns are generally completed quarterly. 

To return VAT through the VAT return the following is calculated: 

  • The input tax is subtracted from the output tax that the business is required to pay HMRC
  • If there is then an excess of recoverable input tax over output tax the business will be able to claim a VAT return from HMRC equal to that excess. 

A business must keep the appropriate records to justify the output tax chargeable by the business for the period in question. 

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