VAT considerations and cashflow planning for COVID-19
Businesses in many sectors are feeling the pressure of COVID-19 and the reduction of customers as a result of social distancing and isolation. We have seen some innovative responses from businesses which we have outlined below and the VAT considerations. We have also detailed some cashflow options available to businesses and what to do if you unable to make your VAT payments.
We have seen business offering discounted vouchers for purchase now that can be used at a later date to help businesses get much needed income at this difficult time. From a VAT perspective, there are two types of gift vouchers – single-purpose and multi-purpose. A single-purpose voucher is a voucher where the VAT rate of the product to be purchased is known at the time of issue (for example, a beauty salon where all services are standard rated). This type of voucher is subject to VAT when issued. A multi-purpose voucher is where the VAT rate is not known at the time of issue (for example, a shop that sells adult and children’s clothing). This type of voucher is subject to VAT when redeemed. It is important to note that if the vouchers are sold at a discount, VAT is only due on the payment received, not on the face value of the voucher. Please get in touch if you need any guidance in this area.
With people being advised to avoid restaurants, (and in light of the Prime Minister's announcements that restaurants and cafeterias should close as of 20th March 2020) some establishments are considering offering their food for take-away. The supply of hot take-away food is still subject to VAT at the standard rate as is considered catering. However, if businesses are providing any cold food (e.g. salads, bread, cakes) or food to be heated at home, these will likely qualify for the zero-rate of VAT. HMRC state that cold food to take away is not catering if the customer must prepare it themselves before it can be consumed (regardless of whether delivered or collected). Cooking, reheating or arranging food on serving plates is considered preparation. Not all cold food will be zero-rated and drinks are typically always standard-rated so please contact us if you need guidance on the different VAT rates.
General cash management options
- VAT grouping
o If you have large intra-group charges, a VAT group will remove the associated VAT charge which could help with cashflow if businesses find that they are paying VAT to HMRC before the receiving entity is able to claim it. There are specific forms that need to be completed to apply for a VAT group and we can provide these if required.
- VAT return staggers
o It may be beneficial to review the VAT periods you are currently using to see if there is one that would better suit your trading pattern. Additionally, if you are in a repayment position (because your purchases are higher than your sales), it may be beneficial to move to monthly VAT returns. If you would like any assistance with modelling this, please get in touch.
- Cash accounting
o If your estimated taxable turnover is less than £1.35 million in the next 12 months, you can apply for cash accounting which means your will only have to pay HMRC when you receive payments from your customers rather than when you issue an invoice. This provides you with automatic bad debt relief.
- VAT reclaims
o If a business has underclaimed VAT on purchases (for example, the most common is employee expenses), it can go back 4 years to correct the position and inject some much needed cash into the business. In some situations, it is possible to utilise alternative evidence if a VAT receipt is not held. We are happy to assist or advise what can be reclaimed.
o Although many invoices are issued electronically now and are received quite quickly after issuing, if businesses are finding that invoices are being posted after the period has ended (and been closed) they should consider running a quick report just before submission to pick up any invoices that have been posted late but still relate to the VAT period.
- Tax Points
o The tax point is when the VAT is due. There is a basic tax point (when goods are provided/service is performed) but this is overridden if payment is received or invoice issued prior to the basic tax point or an invoice is issued within 14 days of the basic tax point. Whilst businesses will be keen to raise their invoices to get payment, it could be possible to consider whether a payment request could be issued first, with the VAT invoice following. This could delay when VAT is actually due.
Time To Pay (VAT)
If businesses do find themselves in the position that they cannot pay their VAT bill, there is a dedicated COVID-19 helpline for businesses struggling to pay their tax liabilities. “Time To Pay” arrangements are on offer for businesses and individuals with a VAT liability. Additionally, arrangements can be obtained in relation to PAYE, Corporation Tax and Income tax liabilities. These arrangements are bespoke and consider your financial situation to allow you to spread the cost of your tax liabilities over a period of time. These can be negotiated by an agent and Mitchell Charlesworth is able to help if needed.
If you find yourself unable to prepare your VAT return or have any questions with the above initiatives or any other you are introducing to get your business through this unprecedented situation, please contact our VAT Partner, Alison Birch, (firstname.lastname@example.org or 0161 817 6100) who will be able to help.