Not for profit VAT update for Coronavirus
Coronavirus VAT changes
Several VAT relaxation measures have been implemented by HMRC to reflect the current Coronavirus pandemic.
If you are a UK VAT-registered organisation and have a VAT payment due between 20 March 2020 and 30 June 2020, you have the option to:
- defer the payment until a later date, or
- pay the VAT due as normal.
HMRC will not charge interest or penalties on any amount deferred as a result of this government announcement.
You can only defer:
- quarterly and monthly VAT returns’ payments for the periods ending in February, March and April
- payments on account due between 20 March 2020 and 30 June 2020
- annual accounting advance payments due between 20 March 2020 and 30 June 2020.
The deferral does not cover payments for VAT MOSS or import VAT.
HMRC will continue to process net VAT reclaims and refunds as normal, and most repayments will be paid within five working days. Repayments will not be offset against any deferred VAT, but they will be offset against existing debts. You can also apply online to move to monthly returns to improve your cash flow, if you’re in a repayment position.
If you do choose to defer your VAT payment as a result of Coronavirus, you must pay the VAT due to HMRC on or before 31 March 2021. You do not need to tell HMRC that you are deferring your VAT payment.
Also, if you normally pay your VAT to HMRC by direct debit, you should cancel this through your bank as soon as possible so that HMRC will not automatically collect any VAT due. VAT payments that are due after the end of the deferral period will need to be paid as normal.
Where possible, you will still need to submit your VAT returns to HMRC on time.
Coronavirus – reasonable excuse and more time to appeal
HMRC has confirmed that, where a taxpayer is unable to meet an obligation (such as a payment or filing deadline) due to Coronavirus, they will accept this as a reasonable excuse, provided the taxpayer manages to remedy the failure as soon as they are able. Taxpayers should explain how they were affected by Coronavirus when making their appeal, as well as making the return or payment as soon as they can.
Taxpayers affected by Coronavirus will also be given further time to seek a review of, or appeal against, an HMRC decision. HMRC will give an extra three months to appeal any decision that is dated February 2020 or later. Appeals should be submitted as soon as possible, along with an explanation that the delay is due to Coronavirus.
HMRC will also not object if, because of Coronavirus, an application is made to the Tribunal to hear a late appeal provided that:
- the review decision is dated February 2020 or later, and
- the application is made within three months of the normal deadline.
Making Tax Digital – extension of soft-landing period
Organisations participating in Making Tax Digital (MTD) for VAT now have until 1 April 2021 to meet the requirement to have full digital links within their record-keeping in light of the current situation. This will ease the burden during the Coronavirus crisis.
Under MTD for VAT, the required digital records can be held within more than one piece of software or spreadsheet, however, there must be a digital link between them. The data cannot be transferred manually between software products.
Participants were given a year from the launch of MTD (soft-landing period) to have these digital links in place, giving organisations until 1 April or 1 October 2020, depending on their original MTD start date. However, HMRC has confirmed that all businesses now have until their first VAT return period starting on or after 1 April 2021 to put full digital links in place.
VAT and online publications – zero-rating brought forward
Zero-rate VAT treatment of online and digital publications has been brought forward from 1 December to 1 May. Digital publications have previously been taxed at 20% in the UK whereas printed publications have been zero-rated since the introduction of VAT in 1973.
This change means that e-books, e-newspapers, e-magazines and academic e-journals are entitled to the same VAT treatment as their physical counterparts. Charities and organisations who provide digital publications, either individually or as part of a package (e.g. as part of a benefit in return for a membership subscription), should change their VAT accounting systems to take advantage of the reduction in VAT, and comply with the new rules.
Royal Opera House Upper Tribunal case – update on VAT recovery of production costs
The recent Upper Tribunal (UT) decision in the case of the Royal Opera House (ROH) in Covent Garden is disappointing – with a loss for the taxpayer. ROH had won their appeal at the First-tier Tax Tribunal (FTT). The case concerned VAT recovery on production costs, and establishing what these costs relate to.
ROH receives exempt income from the sale of tickets for performances as well as taxable income from programme sales, sponsorship income, the sale of ice creams and the provision of catering in bars and restaurants. ROH recovered a significant proportion of VAT incurred on production costs, on the basis that it considered that there was a direct link between the taxable income streams and the production costs. The rationale for this treatment, was that the better the production was, then the more people would attend, which resulted in more income generated from the catering outlets.
HMRC’s view was that this resulted in an unfair level of VAT being recovered, as the production costs were only attributable to the sale of the VAT exempt tickets (and programmes), but were not a “cost component” of the catering supplies.
While HMRC accepted that the production costs had a direct and immediate link to programme sales, production specific sponsorship, shop sales of ROH recordings and production-related venue hire, it made an appeal to the UT concerning the FTT finding that the production costs had a direct and immediate link to the catering and ice-cream sales.
In the recently issued decision, the UT agreed with HMRC that there was not a sufficient link between the production costs and the catering supplies. The production costs were only cost components of the exempt supply of tickets to the performances staged by the ROH. Therefore, the amount of VAT that could be recovered on production costs was reduced.
This decision shows the need to have a clear idea of what costs are used for, or are to be used for, when putting VAT accounting processes in place. It is a link to a taxable or intended taxable supply that gives the right to VAT recovery.