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VAT and income tax deferrals to assist VAT-paying businesses and the self-employed during Covid-19 Outbreak

27 March 2020

As part of the sweeping financial package announced by the Government on 20 March 2020, the Government is offering VAT and income tax deferrals to assist with the cash-flow of VAT-paying businesses and the self-employed. These deferrals are expected to provide over £30bn of additional cash-flow to a wide variety of British businesses.

VAT deferral – key features

  • Applies to all VAT payments falling due between 20 March 2020 and 30 June 2020: In practice this means one quarter’s-worth of VAT being deferred.
  • No need to apply: This is being offered to all UK VAT-paying businesses without eligibility conditions. Foreign businesses with a UK VAT registration will not be entitled to this deferral.
  • To take advantage of this you will need to cancel direct debits: HMRC have confirmed that if direct debits are not cancelled then their systems will collect the VAT due in the usual way, so businesses should look into their payment arrangements as a matter of urgency.
  • VAT returns should still be filed on time in the usual way: These are needed by HMRC of course to track the VAT which will need to be paid eventually.
  • Deferred VAT should be paid to HMRC by 31 March 2021.
  • Businesses which are net recipients of VAT reclaims (rather than net payers) can reclaim VAT as normal: VAT refunds and reclaims are unaffected.
  • Businesses and consumers who are invoiced by suppliers with VAT are still liable to pay the VAT element of these invoices: This deferral only applies to the payments owed by the VAT registered business (in this case, the suppliers) to HMRC. However if you are struggling to make payments to suppliers, you can certainly take this deferral scheme into account in trying to reach agreed payment terms.

Information on the VAT deferral scheme is available on the businesssupport.gov.uk website here.

Income tax deferral – key features

  • Applies to anyone who is due to make a payment on account of income tax on 31 July 2020: This will primarily apply to self-employed individuals, and members of partnerships who are taxed as self-employed, but could also apply to other people who have substantial non-PAYE income (such as income from investments).
  • There are no other eligibility criteria and no application needs to be made.
  • You can defer amounts owed to 31 January 2021.  The deferral is expressly interest and penalty free.
  • The Government describes the deferment as “optional”: They say that “any persons still able to pay their second self-assessment payment on account on 31 July 2020 should still do so.” However there is no suggestion that this is a legal requirement of taking advantage of the deferral.

Information on the income tax deferral scheme is available on the businesssupport.gov.uk website here.

If you have any queries regarding these arrangements please contact the author or your usual Lewis Silkin contact.

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