Indirect taxes

11 Mar 2021

The guidance pages on GOV.UK that are impacted by COVID-19 easements are updated by HMRC, so please note that the information below may not contain all current updates. Also, some COVID-19 updates are being embedded into individual pages of existing guidance so may not necessarily appear on the main COVID-19 webpage for businesses, so we recommend that you also check relevant GOV.UK guidance pages if you cannot see your query below.

QueryStatus / response
After the VAT deferral period ended
Are there any penalties for non-payment of deferred VAT?Information on the VAT deferral penalty is published on GOV.UK.
What do I do if my partial exemption method does not provide a fair and reasonable result due to COVID factors?HMRC has published Revenue and Customs Brief 4 (2021): partially exempt VAT registered businesses affected by coronavirus (COVID-19) which sets out an accelerated process to request temporary alterations to partial exemption methods (including combined methods & special Capital Goods Scheme methods) to reflect changes to the affected business’ practices because of the pandemic.
What do I do if I find an error in the VAT return(s) where I deferred the VAT payment?

Send a VAT652 form to HMRC as soon as possible. You will then receive a Statement of Account confirming the balance,

If any extra payment is needed, this will have to be paid separately as the deadline to add this amount to the ‘opt-in’ instalments was January 2021 (see below). See GOV.UK.

How do I pay my deferred VAT?

Payment of the deferred VAT must be made on or before 31 March 2021, or taxpayers can ‘opt in’ to spread the repayments for up to 11 months (interest free) by 21 June 2021.

See eligibility criteria and instalment terms on GOV.UK

Businesses may also make ad hoc payments to repay any deferred VAT up to 31 March 2021.

Deferred VAT will not be automatically collected by HMRC via the direct debit that collects payment for VAT returns. Payments made to your VAT account will be allocated against any VAT debts that were on file prior to the deferral period. 

Does the VAT deferral period impact bad debt relief?If you have deferred your VAT return payment due to the COVID-19 easement, you cannot claim bad debt relief for unpaid invoices where the corresponding output VAT is still unpaid to HMRC. It can be claimed once the deferred VAT has been repaid to HMRC. [If you are a VAT ‘payments on account’ taxpayer – see below.]
What if I have bad debts and I made a part payment towards my VAT return(s) in the deferral period as I am a payments on account taxpayer?As payments to HMRC do not relate to individual supplies but the total value of VAT due on all their supplies, POA taxpayers should apportion any VAT paid across all supplies made in the period and claim the proportion of VAT that is applicable to the unpaid supplies. A supplier cannot choose which supplies part-payments made to HMRC were for. Thus, if a supplier paid “X”% of the tax due for the VAT period, it can claim that same % of the VAT on bad debts subsequently arising from the supplies it made in that VAT quarter, and the balance once the VAT deferral debt is repaid to HMRC. 
Can I deregister from VAT if I still have deferred VAT to pay?

Yes, though the deferred VAT must still be repaid to HMRC by the published deadline. The liability to pay the deferred COVID-19 VAT balance remains with the legal entity rather than the VAT registration number.

Deregistered businesses will either be able to use the new opt in payment scheme to repay deferred VAT or, if HMRC are unable to provide that, they may offer these businesses the same terms through the Time to Pay service.

When a business with a deferred VAT obligation joins a VAT group, the VAT debt remains with that business and does not transfer to the VAT group. See GOV.UK.

VAT liability
What is the VAT liability of testing services?The VAT treatment is set out in HMRC’s Revenue & Customs Brief 11 (2021): VAT liability of coronavirus (COVID-19) testing services.
If I sell my business, which has been temporarily closed/dormant due to the COVID lockdown rules, will the ‘break in trade’ rules mean that it will not qualify as a transfer of a going concern and VAT would be due on the sale?

A business that has been temporarily closed due to government COVID-19 restrictions would be viewed similarly to a seasonal business or a business that may shut temporarily for refurbishment, which can be examples of where the ‘break in trading’ rules do not affect the TOGC status, where all other TOGC criteria is met.

If the business was operating before the COVID shut down and it is intended that it will continue once the restrictions are lifted, then the normal TOGC rules would apply. This would also apply to businesses that have had to furlough staff – provided the business remains live, even if temporarily dormant because of COVID, then a TOGC could still take place. However, a business that has completely ceased and remains so after restrictions are lifted would not be a TOGC, though HMRC should be contacted where there are individual cases with less straightforward circumstances.

Do I have to charge VAT on supplies of personal protective equipment (PPE)?

In Revenue and Customs Brief 4/20, HMRC introduced a temporary zero-rate to PPE for supplies from 1 May 2020. The end date changed from 31 July 2020 to 31 October 2020 so has now expired.

For a full list of affected products, see GOV.UK (also see imports below). There was not a ‘use’ test for the temporary zero rating.

Do I have to consider VAT if I donate PPE?The usual business gifts rules for VAT apply.
Do I have to account for VAT if I receive a government COVID-19 grant for my business?

The COVID-19 grants such as the Small Business Grant, the Retail, Hospitality and Leisure Grant and the Self-Employment Income Support Scheme (but excluding Eat Out to Help Out claims - see below) are outside the scope of VAT so no output VAT is due on this income. The grant income should be disregarded for the purposes of the VAT registration and deregistration thresholds.

The receipt of grant funding does not automatically mean that an activity is not business or lead to apportionment of input tax. You should look at each grant-funded activity separately and consider whether the activity is business or not. Where grants are received to support business activities, the normal input VAT rules apply. 

What changes have been made to VAT for tourism and hospitality?

The reduced VAT rate for tourism and hospitality is 12.5% with effect from 1 October 2021 to 31 March 2022. The rate is due to return to 20% from 1 April 2022.

There was a temporary reduced rate of 5% applicable to supplies of hospitality and tourism that ended on 30 September 2021. Originally this covered the period from 15 July 2020 to 12 January 2021, though the end date was extended twice by the Chancellor, firstly in the Winter Economy Plan to 31 March 2021 (GOV.UK) and then extended again in Budget 2021 until 30 September 2021. 

The supplies include:

Tourism (e.g. hotels, holiday accommodation, caravan sites, camping) – GOV.UK

Tourism (e.g. entrance to certain attractions) – GOV.UK

Catering (e.g. on-site meals and non-alcoholic drinks in restaurants, cafes) – GOV.UK and GOV.UK.

For the Eat Out to Help Out scheme, do I account for VAT on the total bill before any EOTHO discount, or on the final discounted amount?

This scheme expired on 31 August 2020.

VAT was due on the total bill before the EOTHO discount. The rates were 5% on meals and non-alcoholic drinks, and 20% for alcoholic drinks. See GOV.UK.

Should I declare VAT on income received from the government for the Eat Out to Help Out Scheme?VAT equivalent to the 5% temporary reduced rate has already been declared on this income as it was declared on the undiscounted bill per above. See GOV.UK.
Do I have to charge VAT on supplies of e-publications?

In Revenue and Customs Brief 3/20, due to the need for people to stay at home the date of implementing the zero-rate for certain e-publications was brought forward to 1 May 2020.

HMRC added a new section 9 to VAT Notice 701/10 ‘Zero rating books and printed matter’, plus twenty pages of new e-publications guidance to HMRC’s VAT manuals.

Will the domestic reverse charge for supplies of building works or construction go ahead on 1 October?HMRC delayed the implementation date to 1 March 2021. See GOV.UK.
What do I need to do if there is a change of use of a certified building due to COVID-19 resulting in a self-supply charge?If the use of a certificated building changes or the building is disposed of, as a direct result of COVID-19, and a self-supply charge is due, you should contact HMRC through your customer compliance manager or the charities compliance team by email at wmbchfesector@hmrc.gov.uk

For more information about change of use charges, see paragraph 15.6 and section 19 of VAT Notice 708.
VAT returns and payment
Did VAT returns need to be filed during the period 20 March 2020 until 30 June 2020?

Yes, these VAT returns should have been submitted on time. It is the payment for eligible VAT returns that was able to be deferred (see below).

If a business was unable to submit accurate figures on the VAT return they needed to obtain permission to use estimated figures, including details of why accurate figures were not available.

Do VAT return payments need to be made during the period 20 March 2020 until 30 June 2020?

The following could be deferred:

Payment for monthly and quarterly returns ending 29 February due 7 April,

Payment for monthly and quarterly returns ending 31 March due 7 May,

Payment for monthly and quarterly returns ending 30 April due 7 June,

Payments on account where the payment was due in the period. This included interim payments and balancing payments if their due date was up to and including 30 June 2020. 

Annual Accounting advance payments where the payment was due in the period. Annual accounting balancing payments were included, and they were be reduced by the amount of any payments deferred.

If you did not want to defer your VAT payment, you were able to pay it on time as usual. See GOV.UK.

Which VAT return payments could not be deferred?

VAT return payments with a due date outside of the deferral period date range had to be paid on time as normal, including:

Payment for monthly and quarterly returns ending 31 May had to be paid by 7 July

Payment for monthly and quarterly returns ending 30 June had to be paid by 7 August

Payments on account where the interim payment or balancing payment was due from 1 July 2020 onwards

What do I do if I wanted to defer my VAT but it was been paid in error?

A refund can be claimed if a direct debit was not cancelled in time.

The quickest way for taxpayers to claim a refund is to submit a Direct Debit Indemnity Claim (DDIC) to their bank. When doing so they must ensure they state they want to claim a refund under the Direct Debit Indemnity Scheme. There is no time limit in making this request.

If a taxpayer wants a repayment from HMRC rather than contacting the bank, they must ensure that their bank details are updated using the online services. Due to COVID-19 restrictions, payable orders are not being issued. It may take 21 days for the refund to be received if the DDIC process is not used.

Will any interest or penalties apply to the delayed payment?No. However, VAT returns must have been submitted on time. See GOV.UK.
Will any interest or penalties apply to a delayed VAT return?If the VAT return was submitted late, a central assessment may still be issued by HMRC. Updated guidance has been published about the impact of COVID-19 measures on reasonable excuseappeals and penalties. For COVID-19 issues, HMRC will give you an extra 3 months to appeal any penalty dated February 2020 or later (see Tax Administration).
If my balancing payment was due after the easement period ended, how much do I have to pay to HMRC if my interim payments on account were deferred?If you deferred a payment on account between 20 March 2020 and 30 June 2020 but the balancing payment was outside of these dates, the amount owed was the balancing payment less any deferred payments. Deferring payments did not create a repayment. See GOV.UK.
My business still needs more help than this, what other help is available?HMRC’s Time to Pay system has been enhanced to fit the specific impacts of COVID-19 and is available to all businesses and individuals who are in temporary financial distress as a result of the coronavirus measures and who are unable to pay their tax on time or have existing liabilities. Additionally, HMRC has a dedicated helpline for those who cannot pay because of COVID-19: 0800 024 1222.
If a business normally pays its VAT return by direct debit, do they need to cancel the direct debit or will HMRC simply not collect payment?Businesses needed to have cancelled their direct debit in sufficient time so that HMRC did not automatically collect on receipt of the VAT return. Direct debits should be reinstated for payments now the deferral period has ended. See GOV.UK.
Does deferral apply to VAT due to be paid in relation to disclosures and assessments due to HMRC?No, only VAT payments due alongside normal VAT returns between 20 March and end of June were included in the deferral easement.
How will repayments work, will you offset repayments against VAT due? Can you make repayments faster?Repayments should have been paid as normal. This means that HMRC would have offset repayments against any pre-existing debt but not against any VAT payments deferred due to the COVID-19 easement period. 
I made Time To Pay (TTP) arrangements with HMRC before the 20 March, was this able to be deferred until 31 March 2021?

For TTP arrangements made for payments due before 20 March 2020, you needed to continue to make these payments.

For TTP arrangements made for payments due between 20 March 2020 and 30 June 2020 only, you could benefit from the ability to defer payment until 31 March 2021 or use the online VAT deferral repayment scheme. See GOV.UK.

Did the VAT payment deferral also apply to non-established businesses registered for UK VAT?

Yes it did. See GOV.UK.

Note that to repay deferred VAT in instalments via the VAT deferral repayment scheme, the taxpayer must have a UK bank account. See GOV.UK.

Do MTD digital links have to be in place by 1 April 2020, or 1 October 2020 if you are in the deferred group?HMRC announced that all MTD businesses could have more time to put digital links in place between all parts of their functional compatible software. The deadline is now the first VAT return period starting on or after 1 April 2021. See GOV.UK.
Other easements
Are there any COVID-19 measures for an option to tax?

The temporary extension of the notification period for an option to tax from 30 to 90 days from the date of the decision to opt to tax ended on 31 July. From 1 August 2021, all notifications must be made within the 30 day deadline. See GOV.UK.

The temporary easement allowing electronic signatures to be used for option to tax notifications where supporting evidence is supplied has been made permanent and a new paragraph 7.7 added to VAT Notice 742A – see GOV.UK.

International sales and purchases
Is there any impact to international VAT refunds?Due to the impact of COVID-19 on HMRC’s resourcing, HMRC has announced in its Revenue and Customs Brief 9 (2020): delayed VAT repayments to overseas businesses, that it will be unable to meet the repayment deadline for the Overseas Refund Scheme for some non-EU business claims (historically known as 13th Directive claims). The affected claims are those within the prescribed year 1 July 2018 to 30 June 2019, submitted on or before 31 December 2019. HMRC anticipate that affected valid 2018-2019 claims will be paid by 30 September 2020. The brief also sets out what businesses need to do if, due to COVID-19 impact, they are unable to obtain a certificate of status to accompany their claim for the claim year covering 1 July 2019 to 30 June 2020.
Did the VAT payment deferral also apply to VAT MOSS?No. Payments for Union and Non-union MOSS returns are were not included in the COVID-19 VAT deferral and should have been paid as usual. See GOV.UK.
Did the VAT payment deferral also apply to import VAT?Import VAT and customs duty continued to be collected in the usual manner.
Are there any easements for import VAT?

There was an easement for specific goods allowing tax free imports of certain medical supplies, hygiene equipment and protective garments used for the COVID-19 response from 30 January to 31 December 2020. This has now expired.

The product list is published on GOV.UK.

Are there any easements on time limits for exports and removals?HMRC has updated it guidance with criteria where HMRC may grant a discretionary waiver on the time limits for export and for the removal of goods to EU member states due to COVID-19 issues. SeeGOV.UK.
Are there any easements when importing goods from, or exporting goods to, outside of the EU?Measures include: exports less than €3000, delays during transit of goods and estimated supplementary declarations (though this excludes SDs with excise). See GOV.UK.
Are there any additional measures for exporters?A temporary export licence was required when exporting personal protective equipment (PPE) to countries outside of the EU, EFTA and certain dependant/other territories but this requirement expired for all exports from midnight on 25 May 2020 onwards. See GOV.UK.
Are there any easements on customs authorisations?Measures include: what to do if you are not able to comply with a condition of the customs authorisation, use of email with HMRC instead of post, HMRC customs visits, and automatic renewals of authorisations. See GOV.UK.
Are there easements on tariff preferences?You can claim preferential tariff rates using a copy of the original preference certificate held by the declarant for imports (GOV.UK) and Turkey (GOV.UK).
Other indirect taxes
Did the deferral apply to other indirect taxes/duties such as Machine Games Duty, Insurance Premium Tax, etc.No, unless covered by another Government announcement, you had to pay all other taxes/duties in line with existing rules.
Excise – What if I have to destroy spoilt beer, cider, wine or made-wine during the coronavirus restrictions?

HMRC introduced temporary easement measures for:

brewers

cider producers

wine or made-wine makers

publicans

See GOV.UK.

Can I still pay Wine or Cider Duty by post?No. Temporary measures have been put in place to stop the spread of the coronavirus and you must pay wine or cider duty electronically by Faster Payment, BACS or CHAPS and not by post. See GOV.UK.
Can I still pay Climate Change Levy by post?No. Temporary measures have been put in place to stop the spread of the coronavirus and you must pay Climate Change Levy electronically by Faster Payment, Bacs or CHAPS and not by post. See GOV.UK.