Tag Archives: vat-payment

VAT stats 2020-21

By Marcus Ward 20 December 2021

HMRC has published UK VAT statistics for 2020 to 2021.

Headlines

The total VAT receipts in the tax year ending March 2021 decreased by 22% (£24.1 billion) from the previous year. There was a downward impact on receipts from the VAT deferral measure which took effect from 20 March 2020.

The Wholesale and Retail sector continued to be the largest contributor to net Home VAT liabilities.

Import VAT receipts was also lower: £4.2 billion (13%) for the year compared to the year ending March 2020. This was mainly due to postponed VAT accounting.

68% of total net home VAT declared was paid by traders with an annual turnover greater than £10 million.

VAT population – income

Incorporated companies accounted for the largest share of the VAT population and annual turnover. Companies accounted for 73% of taxpayers, and 92% of annual taxable turnover in the year ending March 2021. Sole proprietors were the second largest group in terms of VAT population; this group accounted for 16% of VAT traders.

Businesses with an annual turnover greater than £10 million declared £67 billion in net VAT, 68% of the total for the tax year. This group only accounted for 1% of businesses.

52% of businesses declared annual turnover below the VAT registration threshold of £85,000.

VAT population – trade sectors

The wholesale and retail sector was the largest in terms of contribution to VAT liabilities. Net VAT liabilities were £29 billion (30%) of the total for the tax year ending March 2021. The financial and insurance sector has replaced the arts, entertainment and recreation sector and accommodation and food services sector in the top ten trade sectors from the previous year.

The construction sector increased by £650 million (12%), the largest year-on-year change. The only other sectors to see increases were wholesale and retail sectors which increased by £30 million (2%) and professional, scientific, and technical activities which increased by £19 million (2%). Of the top VAT contributing sectors, the financial and insurance sector saw the largest decrease of £560 million (25%).

VAT registrations

New registrations increased from the tax year ending March 2013 to the tax year ending March 2017 where it decreased by 33,666 (8%). Since the tax year ending March 2018, there has been an upward trend in new registrations – 300,000 in the year to 2021.

Deregistrations were below 200,000 a year from the tax year ending March 2014 to the tax year ending March 2016, but increased above that level in the tax year ending March 2017, increasing further in the tax year ending March 2018. This increase in deregistrations was likely to be linked to policy changes in relation to the Flat Rate Scheme.

The freeze in the VAT registration and deregistration thresholds has increased the number of registrations and decreased the number of deregistrations progressively from the year ending March 2019.

VAT: HMRC OSS updates

By Marcus Ward 5 October 2021

HMRC has issued two new documents which provide practical guidance for users of the One Stop Shop (OSS).

They cover how to pay the VAT due on an OSS return and how to use the service to submit an OSS VAT return if a business is registered for the OSS Union Scheme. A link has been added to allow a business to submit a OSS return directly.

VAT: Collection of tax debts

By Marcus Ward 8 July 2021

HMRC has announced its approach to collecting debts after Covid-19.

The Policy Paper explains that the government’s priority is protecting livelihoods and keeping people in work. It states that HMRC has been central to this, for example by pausing many of its debt collection activities and delivering support packages.

However, HMRC is restarting its collection of outstanding debts and will be contacting taxpayers who have fallen behind with VAT and other taxes as a result of the pandemic.

HMRC action

If there is a VAT debt, HMRC will contact a business by phone, post or text message so that they can discuss the situation and agree a way forward. It is important for businesses to respond to these communications as soon as possible because, if there is no reply, HMRC cannot establish whether support is needed or there is a simple refusal to pay.

Time To Pay

HMRC usually discuss payment options, such as a payment plan (called Time to Pay – TTP), which is paying off the debt in affordable instalments.

NB: HMRC typically have more than half a million of TTP arrangements in place and more than nine out of ten of them complete successfully.

As part of agreeing Time to Pay arrangements with businesses, HMRC may also discuss other forms of support available. For example, exploring the range of government-backed lending support like Bounce Back loans and Coronavirus Business Interruption Loans, and agreeing repayment holidays or extending repayment terms.

More information about payment arrangements (Time to pay) is available at How HMRC supports customers who have a tax debt.

Deferral

If a business cannot make a payment immediately, by getting in touch with HMRC it may be possible to arrange a short-term VAT deferral. This means nothing would need to be paid for a set period of time, and no further action to collect the tax debt would be taken until that time has lapsed.

Further powers

Although HMRC state that it will take an “understanding and supportive approach” to tax debt, from September 2021, where businesses are unwilling to discuss a payment plan, or where they ignore attempts to contact them, HMRC may start the process of collecting the debt using its enforcement powers. These powers include; taking control of goods, summary warrants and court action including insolvency proceedings.

As may be seen, ignoring tax debts is not a good policy. Talk to HMRC and see if the various support schemes available are suitable.

VAT: New HMRC tool for payment deadlines

By Marcus Ward 22 June 2021

HMRC has published a tool to enable taxpayers to calculate the date by which VAT payments are due. It covers payments by:

direct debit
online or telephone banking
online debit or credit card
Bacs direct credit
bank giro
CHAPS
cheque

Simple, but it works.

VAT: Postponed Accounting

By Marcus Ward 9 February 2021

VAT Basics

A quick look at Postponed Accounting (PA) and what it means for a business after Brexit

Pre-Brexit (if one remembers such halcyon days) acquisitions from other Member States crossed the UK border without any formalities as there was free movement of goods within all of the EU.

Now that GB is a third country, it is unable to take advantage of the benefits of a single market, so acquisitions become imports and are required to be declared when imported. However, gov.uk has announced he return of PA in an attempt to simplify matters.

PA is accounting for import VAT on a VAT return means a business declares and recovers import VAT on the same return, rather than having to pay it upfront and recover it later. This means neutral cash flow; which is to be welcomed.

The normal rules about what VAT can be reclaimed as input tax will apply.

PA also has the advantage that imported goods are not delayed at the entry port while VAT paperwork and payment is completed. Of course, as experience has demonstrated; there may be other reasons for delays to imports and exports.

Who can use PA?

From 1 January 2021, if a business is registered for VAT in the UK, it will be able to account for import VAT on its return for goods it imports into:

GB (England, Scotland and Wales) from anywhere outside the UK
Northern Ireland from outside the UK and EU

There will be no changes to the treatment of VAT for the movement of goods between Northern Ireland and the EU.

A business does not need approval to account for import VAT on its returns.

How does PA work practically?

VAT is payable on imports of over £135 arriving into the GB from any country in the world, which now includes the EU. Practically, PA is similar to the current Reverse Charge. Output and input VAT is accounted for on the same VAT return.

When completing a customs declaration a business may choose how to account for VAT on its return.

If the Customs Handling of Import and Export Freight (CHIEF) system is used:

On the declaration, the following needs to be entered:

the EORI number starting with ‘GB’ which includes the VAT registration number into box 8, or, if applicable, the VAT registration number in box 44h
‘G’ as the method of payment in Box 47e

If the Customs Declaration Service is used:

The VAT registration is entered number at header level in data element 3/40.

Returns

Box 1 – Include the VAT due in this period on imports accounted for via PA.

Box 4 – Include the VAT reclaimed in this period on imports accounted via PA.
Box 7 – Include the total value of all imports of goods included on your online monthly statement, excluding any VAT.

Using someone to import goods on your behalf

If a business uses a third party to import goods on its behalf (eg; a freight forwarder, customs agent, or fast parcel operator) it will need to inform them how it wants to account for VAT on those imports, so that they can complete the customs declaration correctly.

Alternatives

The use of PA is optional. The alternative is to pay VAT on goods when they enter the UK. This means the use of the “usual” C79 certificates sent by HMRC on which input tax may be reclaimed (rather than any other documentation, eg; invoices).

Northern Ireland

Goods moved to NI from the EU are not impots (NI remains part of the EU, so the old rules on acquisitions still apply and no import VAT is due).

Customs Duty

Alongside additional border formalities, Customs Duties may be payable on certain goods. This Duty is not reclaimable like VAT. Most of the complexities of Customs Duty relate to the rules of origin.

Commentary

PA is a relief for businesses importing from the EU. It is a simple system and will be familiar to any business which applies Reverse Charges. With all the varying changes applying post-Brexit, this is one area which should not affect a business importing from the EU in terms of port delays or negative cash flow. To date, there is no evidence on how well the system is working, but anecdotally, I understand that this part of Brexit changes has not thrown up any issues, unlike other problems which have been widely reported. I stand to be corrected though.

How to deal with VAT debt

By Marcus Ward 4 December 2020

In the current climate many businesses are struggling to make payments to HMRC. This clearly can have serious consequences and reduced income due to the Covid 19 coronavirus adds more problems.

This article looks at how to manage a VAT debt position; what can be done, and what not to do.

The first, and most important point to make is; do not ignore a tax debt. It will not go away and, in VAT there is, in most cases a four-year limit for assessing tax, but once assessed or declared, there is no time bar for collecting the debt.

HMRC look for a taxpayer to be taking steps to make a payment, or for a disclosure of the reason funds are unavailable. If HMRC’s Debt Management & Banking team have no idea of the cause of non-payment they will assume that the matter is being ignored and the full force of their powers are likely to be invoked. For background on HMRC’s VAT recovery procedures and powers see here. It is no surprise to learn that the extent of their powers is sweeping and formidable.

Is the VAT debt correct?

The first step is to establish whether a VAT debt is accurate. If it is a result of a normal return, then ensure the declaration is correct. If it is the result of an assessment by HMRC, always challenge it. In the majority of cases, we can assist with getting an assessment reduced or removed completely. A debt may be made up of a combination of; actual VAT, surcharges, penalties and interest

Time To Pay (TTP)

Such an arrangement with HMRC enables a debt to be spread over a period of time. This is usually, but not always, the most beneficial course of action. The process is that the taxpayer submits a proposal for settling the debt over a set period (a “best offer”) in instalments. HMRC may accept the offer, refuse it outright or make a “counter-offer”.

Matters to consider when submitting a VAT TTP proposal:

The shorter the payment period proposed the more likely HMRC is to accept
The sooner a TTP proposal is made the better
HMRC is unlikely to agree a TTP longer than 12 months and most are for a significant shorter period
An offer of an up-front payment also increases the chance of agreement
An agreed TTP avoids penalties for late payment (as long as it is adhered to, otherwise penalties will apply)
If payments are missed HMRC will withdraw from the TTP and the entire debt (plus penalties and interest) will become due immediately
A TTP will avoid HMRC using its debt collection powers
HMRC is likely to request sight of; cash flow forecasts, management accounts and company cash reserve details to evidence a ‘best offer”
Also, information on; management of costs, potential sale of assets, availability of loans, other debts, ability to pay future VAT liabilities may be requested
A business with a history of previous TTPs is less likely to be able to agree a new one
If a formal TTP cannot be agreed, it is still beneficial for a business to make payments as and when they can be afforded. This keeps HMRC onside and may make discussions about future payment more fruitful

What HMRC expect

HMRC look for various ways a business can raise funds to pay a VAT debt, these include:

Sale of assets
Anticipated income, eg; large customer payment, contract or other demonstrable future income
Bank or similar loans (including family members)
Charge on home
Alternative fundraising methods

The Debt Management & Banking staff have experience and knowledge of these methods and also use credit agencies.

Summary

It is always important to talk to HMRC. An ongoing dialogue can improve the debt situation and avoid HMRC taking unilateral action – which is nearly always detrimental to a business. Check that the debt is correct. Consider a TTP arrangement or alternative ways to raise funds. Talk to your advisers.

A debt is often the result of an assessment and penalties. A look at penalties (and how to avoid them) here and an article on how to survive HMRC’s enforcement powers here.

VAT: Bad Debt Relief – Increase due to coronavirus. A guide

By Marcus Ward 17 April 2020

The current coronavirus pandemic has thrown up unprecedented difficulties for society as a whole and significant difficulties for commerce. We have considered UK Government’s VAT assistance in previous articles, here here here and here and this is clearly welcomed.

What has become clear is that businesses and consumers will fall into default in increasing numbers as the economy worsens and it is anticipated that the ability to settle of debts on time will significantly decrease and it is apparent that many debts will never be settled. Consequently, it appears timely to look at the available relief.

The VAT position

VAT registered businesses usually account for tax on an accruals basis (but see CAS) and will therefore be required to account for output tax in the same VAT period as an invoice is issued to a customer. If that invoice is not paid and a bad debt arises this would mean that tax has been accounted for on a payment which has not been received.

Relief

Anything which can relieve the burden of VAT is to be welcomed, especially in such trying times. So VAT Bad Debt Relief (BDR) is a useful tool if a business is aware of it and understand when it may be claimed.

It is at the very least frustrating when a client does not pay, and in some cases this situation can lead to the end of a business. At least the VAT charged to the client should not become a cost to a supplier. The BDR mechanism goes some way to protect a business from payment defaulters.

There is a relief however, as normal with tax, there are specific conditions:

Conditions for claiming BDR

The supplier must have supplied goods or services for a consideration in money and must have accounted for and paid VAT on the supply. All or part of the consideration must have been written off as a bad debt by making the appropriate entry in the business’ records (this does not have to be a “formal” procedure and need not be notified to the customer). At least six months (but not more than four years and six months) must have elapsed since the later of the date of supply or the due date for payment.

Records required

Various records and evidence must be kept (for four years from the date of claim), in particular to identify:

the time and nature of the supply, the purchaser, and the consideration
the amount of VAT chargeable on the supply
the accounting period when this VAT was accounted for and paid to HMRC
any payment received for the supply
entries in the refund for bad debts account
the accounting period in which the claim is made

Procedure for claiming BDR

This part is straightforward: The claim is made by including the amount of the refund in Box 4 of the VAT Return for the period in which the debt becomes over six months old. The amount of BDR is either set-off against output tax due, or may create a refund position with HMRC.

Repayment of refund

Repayment of VAT refunded is required where payment is subsequently received or where the above conditions have not been complied with.

Adjustment of input tax for the debtor

Businesses are required to monitor the time they take to pay their suppliers and repay input tax claimed if they have not paid the supplier within six months. Subsequent payment of all or part of the debt will allow a corresponding reclaim of input tax. This is an easy assessment for HMRC to make at inspections, so businesses should make reviewing this matter this a regular exercise.

Finally, there is tax point planning available to defer a tax point until payment is received for providers of continuous supplies of services. Please see here

More on general VAT payment problems here.

VAT Latest from the courts – Allocation of payments

By Marcus Ward 13 March 2017

VAT payment problems

In the Upper Tribunal (UT) case of Swanfield Limited (Swanfield)

The matter was whether HMRC had the right to allocate payments made by the applicant to specific periods against the wishes of the taxpayer.

Background

Swanfield was late with returns/payments such that it was subject to the Default Surcharge (DS) mechanism. Details of the DS regime here

HMRC issued DSs to Swanfield, many at the maximum rate 15%. The total involved was said to be over £290,000. However, if the payments made by Swanfield had been allocated in a certain way (broadly; to recent debts as desired by the taxpayer) it would have substantially reduced the amount payable. However, HMRC allocated the payments to previous, older periods which were not the subject of a DS.

The Issue

The issue was relatively straightforward; did HMRC have the authority to allocate payments as they deemed fit, or could the taxpayer make payments for specific periods as required?

The Decision

The UT found that Swanfield were entitled to allocate payments made to amounts which would become due on supplies made in the (then) current period, even though the due date had not yet arrived. Additionally, HMRC did not have the authority to unilaterally allocate payments made by the taxpayer to historical liabilities as they saw fit, in cases where the taxpayer has explicitly made those payments in relation to current periods. In cases where there is no specific instruction in respect of allocation of the payment, HMRC was entitled to allocate payment without any obligation to minimise DS. The UT remitted this case back to the First Tier Tribunal to decide, as a matter of fact, whether Swanfield had actually made the necessary allocation.

Commentary

This is a helpful case which sets out clearly the responsibilities of both parties. It underlines the necessity of a taxpayer to focus on payments and how to manage a debt position to mitigate any penalties. Staying silent on payments plays into the hands of HMRC. It is crucial to take a proper view of a business’ VAT payment position, especially if there is difficulties lodging returns of making payment. Planning often reduces the overall amount payable, or provides for additional time to pay (TTP). A helpful overview of payment problems here

Things can be done if a business is getting into difficulties with VAT; whether they are; reporting, submitting returns, making payments, or if there are disputes with HMRC. There are also structures that may be put in place to assist with VAT cashflow.

We would always counsel a business not to bury its head in the sand if there are difficulties with HMRC. Please make contact with us and, in almost all cases, we can improve the situation, along with providing some relief from worries. VAT may be payable, but there are ways of managing payments – as this case demonstrates.