The VAT deferral scheme is automatic but this fact has lulled some businesses into thinking they don’t need to complete a VAT return. It’s easy to think this is no longer necessary, especially as the national shutdown means many businesses can’t physically get to their offices, or have furloughed the relevant staff. While VAT returns may be digital, businesses still often need to look through paper invoices to get the information they need. Businesses may assume government understands this, and don’t expect a VAT return given they are advising people to work from home.
However, the deferral is only automatic providing the VAT return is still submitted – otherwise HMRC doesn’t know how much VAT to defer. If companies don’t submit their return, two weeks after its due date, they will be given a central assessment which is effectively HMRC’s guess at their VAT bill. It’s inadvisable to accept a central assessment if it puts your VAT liability lower than it would have been if you had filled out your return – this is potentially fraud.
The least damaging solution for businesses who simply can’t access the office would be to submit an estimated VAT return, which is an established practice and already permitted in certain circumstances. Using this method requires prior authorisation from HMRC and unfortunately preliminary enquiries suggest it is currently resistant to this solution. If this stance is confirmed in the next few days and weeks it would be a shame, and until we have clarification we can’t recommend an estimated VAT return as a fail-safe solution.
Businesses also need to remember to cancel their direct debit. Once again, the fact the deferral is automatic has prompted people to believe there’s no need to cancel their regular payments. This is not the case and businesses will still end up paying if they forget to cancel.
Alison Horner, indirect tax partner at MHA MacIntyre Hudson