Jet Accountancy

At the start of lockdown, the Government announced a number of measures to help businesses weather the pandemic. One of those measures was the option for VAT-registered businesses to defer VAT payments that fell due between 20 March 2020 and 30 June 2020. This window meant payment of VAT for the following quarters could be deferred:

• quarter to 29 February 2020 – due by 7 April 2020;
• quarter to 31 March 2020 – due by 7 May 2020; and
• quarter 30 April 2020 – due by 7 June 2020.

However, businesses opting to defer payments were still required to file their VAT returns on time.

VAT due after 30 June 2020

Normal service is resumed in respect of VAT which falls due after 30 June 2020. This must be paid on full and on time. Consequently, VAT for the quarter to 31 May 2020 must be paid by 7 July 2020, even if the trader has yet to pay their VAT for the quarter to 29 February 2020. This applies for successive VAT quarters too.

Set up cancelled direct debits

Where VAT is normally paid by direct debit but the direct debit was cancelled to enable the trader to take advantage of the deferral option, the direct debit needs to be set up again so that payments can be taken automatically. If this has not yet been done, payments will need to be triggered manually to ensure that VAT reaches HMRC on time until the direct debit is back up and running.

Paying VAT that has been deferred

Deferred VAT remains due – the measure simply provides a longer payment window; it does not cancel the liability. VAT that fell due in the period from 20 March 2020 to 30 June 2020 was originally due to be paid in full by 31 March 2021.

However, in delivering his Winter Economy Plan on 24 September 2020, the Chancellor, Rishi Sunak, announced that instead, he will allow businesses to spread the repayment of deferred VAT over 11 smaller repayments during 2020/21, with no interest to pay.

Struggling to pay?

Businesses in certain sectors, such as hospitality and leisure, are still not able to operate normally. Where, despite the longer repayment period, a business thinks that it may struggle to repay its deferred VAT, it should contact HMRC to set up a time to pay agreement, which can spread the repayments over a longer period.  This should be done before the first payment becomes due.

The hospitality and leisure industries have been severely affected by the Coronavirus pandemic. To help businesses in these sectors to get back on their feet, a reduced rate of VAT of 5% rather than the standard rate of 20% will apply to certain supplies for a limited period, from 15 July 2020 to 12 January 2021.

Hospitality

Food and drink supplied for consumption in the premises, for example by a restaurant or a bar, and hot takeaway food and beverages are normally liable for VAT at the standard rate of 20%. During the support period, the 5% rate will apply instead to:

• hot and cold food for consumption on the premises on which they are supplied;
• hot and cold non-alcoholic beverages for consumption on the premises on which they are supplied;
• hot takeaway food for consumption off the premises on which it is supplied;
• hot takeaway non-alcoholic beverages for consumption off the premises on which they are supplied.

Hotel and holiday accommodation

For businesses supplying hotel and holiday accommodation, the 5% rate VAT applies during the support period to:

• supplies of sleeping accommodation in a hotel or similar establishment;
• certain supplies of holiday accommodation;
• charge fees for caravan pitches and associated facilities;
• charge fees for tent pitches and camping facilities.

Meals provided to guests in long-term holiday accommodation (more than 28 days) will also benefit from the reduced rate, but the hire of motor caravans will not.

Admission to attractions

The reduced rate of 5% also applies during the support period in respect of admission to certain attractions which would normally be liable for VAT at the standard rate. However, if the admission fee is exempt from VAT, this will take precedence over the 5% charge and the admission charge will remain exempt.

The temporary reduction will apply to admissions to shows, theatre, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas, exhibitions and similar cultural events where these are not included in the existing cultural exemption.

Impact on flat rate scheme

VAT registered businesses using the flat rate scheme should note that some of the flat rate percentages have been reduced to take account of the temporary reduction in the rate of VAT.

The Coronavirus Job Retention Scheme (CJRS) has provided a lifeline to millions of employees and their employers during the Covid-19 pandemic. As at 19 July 2020, 9.5 million employees had been furloughed by 1.2 million employers, benefitting from support totalling £29.5 billion.

As with all good things, the CJRS must come to an end. The scheme is now is its second and final phase, which runs from 1 July 2020 to 31 October 2020. This phase provides a transition from Government support to employers once again meeting the costs of employing their employers. From 1 July 2020, furloughed employees can return to work on reduced hours under the flexible furlough rules, with employers paying the employees as usual for the hours that they work and claiming a grant under the CJRS for the remainder of their normal hours. Employees who were not furloughed for at least three consecutive weeks prior to 1 July 2020 are not eligible for a grant under the scheme from July onwards (unless the employee returns from statutory leave).

During the final phase of the scheme, employees will continue to receive 80% of their pay up to the equivalent of £2,500 a month – this is known as minimum furlough pay.

From 1 August 2020, the financial support provided under the scheme starts to reduce. For claim periods on or after 1 August 2020, employers cannot claim back the employer’s National Insurance and minimum pension contributions on grant payments but must instead meet these costs themselves. For September, employers can only claim 70/80^th of the employee’s minimum furlough pay; this reduces to 60/80^th for October. However, furloughed employees will continue to receive their minimum furlough pay, with the employer making up the shortfall.

Job Retention Bonus

When the scheme comes to an end, employers will need to assess their staffing requirements and decide whether they can bring furloughed employees back to work. The Government are keen that they do. To encourage employers to retain furloughed employees, they will pay a Job Retention Bonus of £1,000 for each furloughed employee who is employed continuously from the end of the CJRS until 31 January 2021. To qualify for the bonus, the employee’s earnings during this period must, on average, be at least equal to the lower earnings limit for Class 1 National Insurance purposes, set at £120 per week (£520 per month) for 2020/21. The Government will pay the bonuses from February 2021.