How has COVID-19 affected VAT and tax rules?

Amid a swirling mass of information surrounding the response to the coronavirus, numerous tweaks, delays, and changes to important tax and VAT rules have been happening.

It’s sometimes hard to keep up with the number of announcements coming from the Government.

So, what’s already been altered? Below, we look at some of the most important changes so far.

Deferral of VAT payments

All UK VAT registered businesses have the option to defer VAT payments, and for most, the deadline for submitting returns and making payment is one calendar month and 7 days from the end of the VAT period. 

VAT payments you can defer

You can only 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
• The deferral does not cover payments for VAT MOSS or import VAT.

VAT repayments and returns

HMRC will continue to process VAT reclaims and refunds as normal and most repayments are paid within 5 working days. Although there is no application process to take up the offer of payment deferral, VAT returns must be submitted as usual and by the deadline.

Click here to read more on available assistance for businesses, including the deferral of VAT payments.

Three-month extension to file accounts at Companies House

Companies House has announced a three-month extension period to filing accounts for those citing COVID-19 or health issues.  This scheme is not quite as straightforward and may not apply if the company has already applied to extend their filing deadline or shorten their accounting reference period, so it’s important to check to avoid potential penalties.

Click here to read more about extending the deadline for filing accounts.

Delay to IR35

IR35 was the first major piece of legislation to be shelved as the pandemic panic hit and the Government began its response. The legislation would have taken effect in April, but instead has been postponed by a year until 6 April 2021.

IR35 shifts the off-payroll rules for contractors, and the Government rightly identified that contractors – and the clients they service – would be hard hit in the current climate. Steve Barclay, Chief Secretary to the Treasury, said: “This is a deferral and not a cancellation.”

MTD and digital links

Just two days before the digital transmission of Making Tax Digital for VAT was due to come into force, HMRC announced an 11^th hour reprieve. Rules that specified the digital submission of transaction data through the MTD for VAT filing process will now have a year’s grace to 1 April 2021.

The criteria for the digital links specified that data had to be transferred digitally with no manual intervention, which led to software solutions and bridging tools devised to support accountants and businesses with the changes afoot.

HMRC is extending the soft-landing period given for digital links applicable to businesses over the VAT threshold, as brought in a year ago. The delays cast doubt over the next wave of more challenging MTD changes due, which were to include income tax and expense updates.

Time to Pay service scaled up

As part of the Chancellor’s Coronavirus package of emergency measures, HMRC’s Time to Pay service has been scaled up to allow businesses and the self‐employed to defer tax payments over an agreed period (usually three months and interest is still payable).

Tax payments have also been delayed for VAT, through to 30 June 2020 – and it automatically applies. The VAT will be deferred until the 2020/2021 financial year and no interest or default charges payable. And for the self-employed, Self-Assessment income tax payments on account due in July have been automatically deferred to 31 January 2021.

What does the future hold?

The response to the coronavirus crisis is so fluid that it’s hard to anticipate how things will change further. We’ve already seen a number of measures being tweaked or extended. Most if not all of the rules will still likely go ahead eventually but time will tell.

Keep up to date through our blog.

For more help and resources for keeping your business running successfully despite the crisis, visit our hub.