As a result of the coronavirus pandemic, the government offered a VAT deferral on payments due between 20 March 2020 and 30 June 2020. This deferral window is now about to close, with businesses required to pay VAT on the normal due dates from 1 July 2020.
Here we outline the options for businesses that are unable to pay the VAT due by 7 July, for their May VAT return due to the negative impact of COVID-19 on their trading situation.
Payment Support Service (PSS)
- Businesses should contact the PSS at HMRC and ask for a Time To Pay arrangement before the VAT is legally due for payment; and
- This means any VAT liabilities paid under a Time To Pay Arrangement will not be subject to a default surcharge.
Before you contact HMRC you should have the following to hand:
- Your reference number (your 10 digit Unique Taxpayer Reference or VAT reference number);
- The amount of VAT that is outstanding and the reasons why;
- Your proposals to settle the arrears;
- How much you can pay immediately and how long you may need to pay the balance; and
- Your bank account details.
Contact details for PSS can be found here.
How much additional time can I request?
It is important to calculate how much VAT can be paid, backed up by clear timescales. There is no defined deferral period that HMRC allows, so the question should not be “What is the maximum time HMRC will give me to pay my VAT?” Instead have a clear strategy over what can be paid and the liability cleared in the shortest period of time, if you need to contact the PSS.
A partial payment on time should be your starting point, supported with a clear indication of how much the business can afford to pay to clear the rest of the unpaid liability. This will be seen as a constructive approach and so is more likely to be agreed by HMRC.
What is a reasonable excuse for deferral?
The concept of ‘reasonable excuse’ is not clearly defined in law. A reasonable excuse is something that stopped you meeting a tax obligation that you took reasonable care to meet.
Within its examples of what constitutes a reasonable excuse, HMRC have now added a paragraph specifically on coronavirus: ‘HMRC will consider coronavirus as a reasonable excuse for missing some tax obligations (such as payments or filing dates).
Explain how you were affected by coronavirus in your appeal. You must still make the return or payment as soon as you can.’
Other examples of reasonable excuses can be found here.
An extra three months to appeal against a tax decision
You usually have three months to appeal against a tax decision; however HMRC will currently:
- Grant an extra three months to appeal any decision dated February 2020 or later;
- For example, an officer’s VAT assessment raised on 31 March and subject to a 30-day appeal deadline, must be appealed by 31 July rather than by 30 April; and
- Send your appeal as soon as possible and explain the delay is because of coronavirus.
Further information on tax appeals can be found here.
Direct debit
If you have taken advantage of the VAT deferral period and you pay by direct debit, the direct debit mandate must be reactivated with your bank after 30 June.
Cashflow
Any cashflow projections must include the 31 March 2021 deadline for settling the VAT deferred during the payment holiday window.
At M+A Partners, we are here to help and support you as you navigate through the government’s coronavirus support payment measures during these challenging times. If you need our help or have any queries on the above then please get in touch.
