By Richard Miller, Senior Manager at Corporate Strategies
Setting the scene – Government support
One of the ways that HMRC is supporting UK business to weather the pandemic is through VAT deferment.
The Government announced back in March that VAT payments could be automatically deferred, with no application or notification of HMRC required.
Businesses were not required to make VAT payments during the deferral period and were instead initially given until 31st March 2021 to pay any liabilities which accumulated. Then in September, it was announced that, rather than paying in full by this date, businesses now have the option to pay 11 equal instalments during 2021-22. All businesses that took advantage of the VAT deferral will be able to opt into this New Payment Scheme, which is expected to be put in place in early 2021.
HMRC will not charge interest or penalties on any amount deferred. VAT refunds and reclaims continue to be processed as normal.
For those companies that deferred VAT between 20th March and 30th June and still have payments to make, options include paying the deferred VAT in full on or before 31st March 2021 or opting into the VAT deferral new payment scheme, which is expected to launch early next year.
Good track record?
If a business has a strong track record with HMRC but its turnover has been impacted by the pandemic, the owner or their accountant can easily progress with these options online or over the telephone.
There are always options – but act quickly
For those slightly trickier cases – when businesses have a history of HMRC debt and are unable to fulfil their tax obligations – it is recommended the owner seek the help of professionals to ensure that the proposal is robust and the repayment plan viable.
When we meet with clients who come to us with concerns about VAT and winding up action, we first find out their compliance history and strength of their relationship with HMRC. This often governs how successful a repayment proposal is.
We always advise owner managers to take action as soon as they feel financially distressed. The quicker the owner acts, the more options that are available to the business.
Time to Pay (TTP) arrangement case study
Whilst working with our clients over the last few months, HMRC has demonstrated willingness to accept Time to Pay (TTP) arrangements over extended time periods than previously acceptable in order to help businesses directly impacted by Covid-19.
One such example is our successful negotiation for an engineering company that had taken out several TTP arrangements over the past five years. The latest had failed due to COVID – the majority of its orders have been delayed until next year. Despite having taken advantage of Government initiatives and furloughing most of its staff, it was left with pre-pandemic arrears of £180k and total HMRC liabilities reaching £275k.
Despite company arrears having previously progressed to Debt Enforcement and HMRC issuing a warning of Notice of Requirement (NoR) to the company, we were able to secure a TTP arrangement for the full amount of £275k over a two year repayment period, including the Covid-19 deferred VAT, as well as overdue repayment of Coronavirus Job Retention Scheme PAYE & NIC. Pulling all HMRC debts together into one repayment makes the situation much more manageable.
Had we not become involved in the case, it’s highly likely that arrears would have again been passed to HMRC Enforcement and Insolvency Service. We immediately contacted HMRC Securities Team to ensure the NoR action was held whilst we negotiated a TTP as failure to meet it, once issued, can often result in fines and even prosecution.
However, by maintaining contact with HMRC and agreeing an arrangement, the Securities Team withdrew action and our TTP proposal was approved. We’re now working alongside the client, with our wider Group advisors – to help get the business up and running successfully again.
Sectors receiving greater support
Those sectors hit especially hard by the pandemic are receiving even greater support from HMRC – subject to their compliance history with HMRC.
We’re seeing that businesses involved in hospitality and leisure, for example, obtaining particularly good TTP deferment terms over longer periods – years in many cases, rather than months. They’re also eligible for a temporary reduction in VAT rates, so it’s very worthwhile exploring all options to be sure of what special dispensations are available.
Trends that we’re identifying
At Corporate Strategies, we’re certainly seeing HMRC offering support to those businesses that are struggling to repay VAT – and therefore usually other taxes and debts – by agreeing repayment instalments at whatever level they can afford. There’s no maximum time period set in stone.
We also always recommend communicating any trading difficulties and paying towards arrears rather than delaying, as HMRC are implementing late payment interest and the default surcharge regime (for VAT falling due outside of 20 March to 30 June 2020).