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The Clock’s Ticking: Covid VAT deferral – new payment scheme

Written by admin on . Posted in COVID-19, Tax, VAT. No Comments on The Clock’s Ticking: Covid VAT deferral – new payment scheme

Businesses that deferred VAT payments due between 20 March and 30 June 2020, and cannot afford to pay by 31 March 2021, have the option of joining a new scheme allowing them to pay the deferred VAT over a longer period. The VAT deferral new payment scheme opened on 23 February and will close on 21 June 2021.

The scheme lets a business pay any outstanding deferred VAT in equal instalments without incurring interest or penalties. The number of instalments can be between two and 11, depending on when a business joins the scheme.

Instalment options

To benefit from the maximum 11 instalments, a business needs to join the scheme by 19 March 2021. For later joining dates:

Join by Maximum instalments
21 April 10
19 May 9
21 June 8

 

Of course, fewer instalments than the maximum can be selected. The first instalment is payable at the time of joining, with a direct debit set up required for subsequent payments. All instalments must be paid by 31 March 2022.

How to join

A business has to opt in to the new scheme. This is done using the business’ Government Gateway account, and one will need to be created if not already set up. Before joining, a business must:

  • Be up to date with its VAT returns;
  • Correct errors on VAT returns as soon as possible;
  • Make sure they know how much VAT was originally deferred, and how much is still outstanding;
  • Decide on the number of instalments to pay; and
  • Be able to make the first instalment.

 

Because of the direct debit requirement, the new scheme cannot be set up by an agent. If a business is unable to use the online service or pay by direct debit, then they should contact the COVID-19 helpline on 0800 024 1222. The starting point to join the VAT deferral payment scheme can be found here.

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The Spring 2021 Budget – still some surprises

Written by admin on . Posted in Budget, Business Rates, Capital Gains Tax, Tax, VAT. No Comments on The Spring 2021 Budget – still some surprises

A quiet turning of the tax screw.

Just before the Budget arrived on 3 March, it seemed as if the Chancellor would have nothing to say that was not already public knowledge. However, while some of the torrent of leaks were confirmed, none of the pre-Budget pundits correctly predicted the Chancellor’s strategy. Instead of cutting borrowing, Mr Sunak increased it sharply in 2021/22 over the estimates produced just four months earlier in his Spending Review.

The Chancellor’s approach was:

  • To stimulate investment in the next two years with extremely generous allowances. In effect, for every £1,000 a company invests in new plant and machinery, the government will reduce their corporate tax bill by £247.
  • To pay for this largesse and start to repair public finances:
    • From April 2023, when the enhanced investment allowances end, the rate of corporation tax for companies with profits of at least £250,000 will jump by 6%, from 19% to 25%.
    • Many personal tax thresholds, bands and allowances will be frozen until the end of 2025/26.

The big freeze of everything from the pensions lifetime allowance to the inheritance tax nil rate band counts as a stealth tax. Look at the raw numbers and there is no increase in tax – everything stays the same. In practice, the effect of inflation will take its toll. As incomes and wealth rise, thresholds are crossed and tax bands filled more quickly. More people become taxpayers and all taxpayers pay more tax.

A good (or possibly bad) example is the inheritance tax nil rate band, which was set at its current £325,000 level (now running through to 2026) way back in April 2009. Had the band been linked to the CPI inflation index, it would be about £90,000 higher in 2021/22. That difference equates to an extra £36,000 in inheritance tax at the standard 40% rate.

In other words, you may think you were spared higher tax bills by the Chancellor, but that is not necessarily the case. Tax planning is still important and will become more so as the freeze drags on to 2026.

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CIS: VAT Reverse Charge: Rules from March 2021

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The VAT domestic reverse charge will finally apply to most supplies of building and construction services from 1 March 2021. The rules, whose implementation have been postponed twice, cover standard and reduced rate VAT supplies between VAT-registered sub-contractors and contractors where reporting is required under the construction industry scheme (CIS).

The definition of construction services is based on the CIS definition, with various professional services excluded. However, unlike the CIS, the reverse charge applies to the total supply if any element in the supply is within the definition, subject to a 5% disregard.

Sub-contractors

The reverse charge applies if the following conditions are all met:

  • The supply is within the scope of the CIS.
  • The supply is standard or reduced rated (zero-rated supplies are excluded).
  • The customer is VAT registered.
  • The customer is CIS registered.
  • The customer is not the end user (the final customer who does not make an onward supply – typically, the property developer).

Sub-contractors will no longer charge or account for output VAT, and invoices must state that the reverse charge applies.

Cashflow is likely to be affected for sub-contractors who will no longer benefit from retaining VAT before paying it over to HMRC. Moving to monthly VAT returns could be the best option for managing repayments.

Main contractor

The main contractor accounts for the VAT on the services of sub-contractors as output VAT, but can also usually claim a corresponding input VAT deduction.

The end user will then be invoiced as normal. The main contractor will therefore now be responsible for accounting for the full amount of VAT in the chain.

The VAT reverse charge means adjustments for subcontractors and contractors. Detailed technical guidance from HMRC, including supplier and buyer flowcharts, can be found here.

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Navigating VAT in a post Brexit world

Written by admin on . Posted in BREXIT, Tax, VAT. No Comments on Navigating VAT in a post Brexit world

Many businesses are struggling with the VAT regime in place since Brexit, especially when it comes to exporting goods to the EU. We address some of the common misunderstandings.

Exporting goods

Provided you have proof of postage or shipment, goods exported from the UK to the EU are zero-rated. However, as businesses are finding out, problems arise because the VAT implications of importing into the EU must also be factored in.

Most businesses will need to accept responsibility for the EU VAT and therefore export on delivered duty paid terms. This adds significant cost unless you register for VAT in each country exported to so that VAT can be recovered. However, the introduction of the EU’s one stop shop from 1 July 2021 will mean just one EU member state VAT registration will be required for consignments of less than 150 Euros.

Many businesses are setting up an EU base to get around the worst of the problems, which the government has appeared to encourage. The Netherlands, with English spoken by most, is a popular choice, and Dutch logistics and warehousing companies are seeing high demand for their services.

Imported goods

The introduction of postponed import VAT accounting means that, in most cases, import VAT does not need to be paid upfront. Instead, import VAT is accounted for as a reverse charge on the VAT return. You or your agent simply need to indicate on the customs declaration that postponed accounting will be used.

Services

VAT on business to business services remains essentially the same, with the place of supply generally where the recipient belongs. There is no longer any need to submit EC sales lists for goods exported or services supplied to the EU.

HMRC guidance on VAT on exports can be found here.

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