New HMRC VAT Deferral Scheme – Update

If your business deferred VAT payments for the February, March or April 2020 VAT returns, HMRC has issued updated guidance in relation to the repayment of these outstanding amounts.

If the business has outstanding VAT to pay, the business can either:

  • Pay the deferred VAT in full, on or before 31 March 2021; or
  • Join the VAT deferral new payment scheme.

The opt-in process for the VAT deferral new payment scheme will be open from 23 February to 21 June 2021 (inclusive).

If your business is on the VAT Annual Accounting Scheme or the VAT Payment on Account Scheme, the business will be invited to join the new payment scheme later in March 2021.

The new deferral scheme allows businesses to:

  • Pay any applicable deferred VAT in equal instalments, interest free; and
  • Choose the number of instalments, from 2 to 11 (depending on when it joins).

To use the online service, the business must:

  • Join the scheme itself. Agents cannot sign up on the business’ behalf;
  • Still have deferred VAT to pay;
  • Be up to date with its VAT returns;
  • Join by 21 June 2021;
  • Pay the first instalment when it joins;
  • Pay its instalments by Direct Debit (if you want to use the scheme but cannot pay by Direct Debit, there’s an alternative entry route).

If your business joins the scheme, it can still have a Time to Pay arrangement for other HMRC debts and outstanding tax.

Instalment options available to you

The month the business decides to join the scheme will determine the maximum number of instalments that are available. If you join the scheme in March, you’ll be able to pay your deferred VAT in up to 11 instalments.

The table below sets out the monthly joining deadlines (to allow for Direct Debit processing) and the corresponding number of maximum instalments (including the first payment):

If you join by: Number of instalments available:
18 March 2021 11
21 April 2021 10
19 May 2021 9
21 June 2021 8

Before joining, the business must:

  • Create its own Government Gateway account (if it does not already have one)
  • Submit any outstanding VAT returns from the last 4 years – otherwise the business will not be able to join the scheme
  • Correct errors on any VAT returns as soon as possible
  • Make sure you know how much the business owes, including the amount you originally deferred and how much you may have already paid (if any).

Interest & Penalties

You may be charged interest or a penalty if you do not:

  • Pay the deferred VAT in full by 31 March 2021.
  • Opt into the new payment scheme by 21 June 2021.
  • Agree extra help to pay with HMRC by 30 June 2021.

Recent VAT cases for Rural Businesses

Chiene + Tait’s VAT Director Iain Masterton runs through some recent VAT cases that impact on the rural business sector. If you have a query about VAT, please feel free to contact us today.

Brexit

The implications of Brexit are still being debated and nothing is yet certain, though it seems that VAT, the ‘European’ tax, will still be with us for some time. Brexit will be felt by businesses that
currently trade with the EU (especially in goods), however the UK (or Scottish) Government may be free to change elements of the VAT system without having to adhere to European VAT Directives. For farms and estates, we do not envisage any major changes, at least for now.

Room Hire

HMRC won a VAT Tribunal against a hotel which confirmed that VAT was due on the hire of a room for a civil wedding ceremony, even where there was no option to tax in place.
The hotel had considered that its income from renting out the rooms for events was VAT exempt. The hotel operated under the Marriages & Civil Partnership (Approved Premises) Regulations 1995, which made it clear that the hotel provided a number of services rather than just the passive hire of a room (which are the hallmarks of a lease or licence to occupy). The Tribunal agreed that the resulting ‘service’ was subject to VAT. HMRC also consider that the supply of a room in a venue is subject to VAT if the purpose of the hire involves catering, whether this is provided by the venue or a third party. This includes receptions, breakfasts and birthday parties; and it will now include rooms for wedding ceremonies too. This differs slightly from HMRC’s policy on conferences where day delegate rates at venues can be treated as exempt (if no option to tax is in place). Long-stay delegate rates that include board and accommodation can be apportioned.

Conversions

An area where the UK Government might still provide VAT incentives is residential property. If you rent out residential property, this will be VAT exempt and any VAT incurred on renovations or repairs to these buildings is likely to be irrecoverable. Three VAT concessions exist currently which reduce the VAT cost on residential renovations by 15% to 5%. These are:

  • Renovation of a residential property which has been empty for 2 or more years
  • Renovations which change the number of dwellings after completion, and
  • Conversion of a non-residential property into residential.

If you are considering renovating existing residential properties, or converting steadings or old agricultural buildings, knowing where these VAT reductions apply can reduce the amount of irrecoverable VAT on residential property renovations. This should be established at an early stage to ensure budgets are accurate.

Cars, Vans & Agricultural Vehicles – VAT recovery?

VAT recovery depends on whether there is any private use of the vehicle and the vehicle design. VAT is irrecoverable if the vehicle meets the car ‘tests’ and if there is any private use. The following are not cars for VAT purposes:

  • Vehicles capable of accommodating only 1 person or suitable for carrying 12 or more people including the driver
  • Vehicles that don’t have roof accommodation to the rear of the drivers’ seat
  • Caravans, ambulances and prison vans
  • Vehicles of not less than 3 tonnes unladen weight
  • Special purpose vehicles, such as ice cream vans, mobile shops, hearses, bullion vans, and breakdown and recovery
  • Vehicles and vehicles with no side windows
  • Vehicles with a payload of 1 tonne or more.

We are seeing more vehicles with payloads of more than 1 tonne not being treated as ‘cars’ which allows a more favourable VAT treatment where there is private use. If you can demonstrate that the car is being used 100% for the business, the VAT is fully recoverable, assuming the business is entitled to full VAT recovery.

The VAT rules allow 50% of the VAT on a lease to be eligible for recovery, even where there is private use. As above, where the vehicle is not used for any private purposes the 100% of the VAT on the lease can be recovered.

Have a question about VAT, get in touch with Iain at mail@chiene.co.uk or call 0131 558 5800.