How can I pay back my deferred VAT?
- June 19, 2020
- Posted by: admin
- Category: Business Growth, Business plans, Contractors, Expenses, Finance & accounting, Investment, Making Tax Digital (MTD), Property, Start-ups, Tax
As part of the government’s support for businesses during COVID-19, HMRC gave businesses the option of deferring their VAT payments if they were unable to pay on time, without incurring late payment interest or penalties. Payment of VAT falling due between 20 March and 30 June 2020 can be deferred until 31 March 2021.
However, the real question that comes from this deferral is “has the deferral helped or made my situation worse”. At the end of the day, I would have to pay the outstanding sum by March 2021 as well as the amounts due in that same period…. It would be a double whammy, right? I’m sure most businesses would be in support of canceling all VAT payments completely for that period…. keep wishing.
We have listed a few things below on how your VAT can improve your cashflow.
Monthly pay
In these cases it is usually worth submitting returns as soon as possible after a quarter-end to initiate refunds sooner and to apply to submit monthly VAT returns if they regularly reclaim VAT from HMRC to benefit cash flow. While it may seem like hard work getting your VAT accounting in order, taking the time to prepare accordingly can actually save you money and improve your cash flow in the long-run. You can apply online to move to monthly returns to improve your cashflow if you’re in a repayment position.
Cash accounting
The widely used cash accounting scheme can be used if your estimated VAT taxable turnover during the next tax year is not more than £1.35 million. You can continue to use the cash accounting scheme until your VAT taxable turnover exceeds £1.6 million. VAT is payable only based on VAT received rather than on the standard invoice basis where you could wind up paying VAT before you’ve been paid. The turnover limit for that is up to £1.5m and it applies to a wide range of businesses so for those under cash flow pressure on collecting cash in it is worth considering. There’s generally a cash flow benefit straight away if a business is profitable
VAT repayments
HMRC will continue to process VAT reclaims and refunds as normal and most repayments are paid within 5 working days.
Repayments will not be offset against any deferred VAT, but they will be offset against existing debts.
Where you could possibly receive VAT repayment, we would suggest you use it to make a contribution towards your deferred VAT.
Time to pay arrangements
Time to pay arrangements are available to all businesses and individuals who are in temporary financial distress as a result of coronavirus. Time to pay arrangements that started before 20 March 2020 should still be paid.
Conclusion:
Any short term help to support businesses with their cashflow at this time is to be welcomed.