Deferring VAT and Income Tax26th March 2020
On 20 March 2020, the UK Chancellor of the Exchequer announced a package of COVID-19 measures. The measures on tax include the deferral of VAT payments by businesses and of income tax payments due from certain individuals, particularly in the self-employed sector.
The VAT deferral will apply from 20 March 2020 until 30 June 2020.
To bring rapid cash-flow relief to businesses, Sunak announced a VAT holiday from now to June. The Chancellor said the deferral is “a direct injection of £30bn of cash to employers, equivalent to 1.5% of GDP”. Struggling businesses until the end of the tax year to pay.
The official COVID-19: support for businesses document explains: “This is an automatic offer with no applications required. Businesses will not need to make a VAT payment during this period. Taxpayers will be given until the end of the 2020 to 2021 tax year to pay any liabilities that have accumulated during the deferral period. VAT refunds and reclaims will be paid by the government as normal.”
It’s a policy the Labour government adopted in 2001 for the farming sector during the foot-and-mouth disease and one that has been lobbied for before the Budget on 11 March.
“Delaying VAT due is one of the quickest ways to give business a much-needed cash-flow boost. It leverages the ability of the government to borrow a historic low rates to help companies through this difficult time,” he said.
While a VAT holiday only kicks the payment down road, this option is preferable because it’s “simple to adopt” rather than cutting rates, which is “complex business” for mid-sized and larger companies.
“Adjustments to inter-linked accounting, purchasing and invoicing systems means even simple VAT rate changes require huge amounts of calibration and testing,”
Simas Accounting will continue to provide updates on this and other government measures being brought into help business navigate these challenging months ahead.