COVID-19 (CORONAVIRUS) AND VAT TIME TO PAY

Last updated : 18th March 2020.

On 11th March 2020, the UK Government introduced a range of measures, some of which have been superseded on 17th March 2020, to support businesses in response to COVID-19.

All businesses in financial difficulty, and with outstanding tax liabilities, may be eligible to receive support with their VAT through HMRC’s Time To Pay service. NB It is important to contact HMRC before the VAT debt becomes payable; this will significantly improve your negotiating position.  However, if you have already missed a payment you may still be able to reach agreement, but you should contact HMRC promptly.

HMRC’s guidance on making Time To Pay applications sets out the information you will need to provide to them:

  • Your reference number (for example, your 10-digit Unique Taxpayer Reference or VAT reference number);
  • The amount of the tax bill you’re finding it difficult to pay and the reasons why;
  • What you’ve done to try to get the money to pay the bill;
  • How much you can pay immediately and how long you may need to pay the rest; and
  • Your bank account details

Whilst we are hoping that HMRC demonstrate a sensible approach and some leniency given the circumstances, they do have a procedure to follow so be prepared for them to ask you about your:

  • Income, expenditure and projections of these in the coming months;
  • Assets, reserves, savings and investments;
  • What you’re doing to get your tax payments back in order; and
  • What other sources of finance you have already explored, such as borrowing options.

Once they accept that you qualify for Time To Pay, expect additional financial questions, as HMRC will then try to establish how quickly you can repay the tax owed, what other taxes will also fall due (and which must be paid) and how feasible the agreement is.  They may also ask you for supporting evidence.

It would be advisable to prepare your discussions with them in advance, and take advice, to ensure the most favourable first hearing from HMRC, as this will be simpler and quicker than trying to overturn an unfavourable decision.  We have a great deal of experience negotiating these arrangements with HMRC and we can assist you in preparing and critiquing an application.  HMRC officers treat these discussions as a negotiation and typically they will be seek a large initial payment and then frequent, sizeable payments with a view to clearing the debt as soon as possible and avoiding any missed payments (which will typically invalidate an agreement).

VAT is not the only tax to pay, and any agreement on VAT will require you to pay your other taxes on time.  It is unlikely you will be able to agree time to pay on more than one tax, but if you require this then certainly ask.
HMRC will want to avoid non-payment of one tax subsidising payment of another and they clearly state that once a Time To Pay agreement is in place:

You must keep these payments up to date and pay your other tax. If you do not, HMRC will normally cancel the arrangement and take legal action against you straight away.”

HMRC may decide that in their view you should be able to pay immediately, out of your own resources, which you would then need to challenge.  We have considerable experience of successfully challenging these decisions and can assist you with this.  Where agreement cannot be reached, or an agreement is in breach, we can discuss options with you and potential approaches we can take with HMRC that may still be effective..

ADDITIONAL VAT HELP

In addition to asking for more time to pay, there are a large numbers of VAT management approaches that can assist you in reducing the VAT burden on the business.  Many of the most effective ideas will be specific to your particular sector or business arrangements.

These approaches have the potential to create short term VAT breathing space, longer term cash-flow management benefits and in some cases may be able to reduce the absolute VAT exposure you face on a regular basis.  Please let us know if you would like to explore these further.

As developments unfold, we will make further announcements on our website and social media.

For further information, please contact your usual contact or Relationship Manager, or telephone on 01923 332586.

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