VAT Payments on Account - what to do if Coronavirus has affected your business
The VAT Payments on Account Scheme works on an estimation of historic figures. Given the Coronavirus crisis, businesses may find their true liability has currently reduced. In this article we discuss the implications and process to take to address this.
23 June 2020
The VAT Payments on Account Scheme is compulsory for any business that has an annual VAT liability of more than £2.3m.
The way it works is that the business can carry on filing VAT returns on a quarterly basis, but at the end of month 1 and month 2 of each quarter they are obliged to make interim payments to HMRC with a balancing payment due to HMRC together with the VAT return.
These interim payments are estimated based on historic figures and, given the recent Coronavirus measures imposed and their impact on trading operations, many businesses may find that their true liability has reduced.
It is, however, not that easy to change the amounts due or even leave the scheme (if turnover has dropped below £2.3m). In this article we have outlined the various options available to businesses.
Asking for a reduction in the payments
If the VAT liability of the business has fallen by at least 20% it is possible to ask HMRC to reduce the payments on account by writing to the payments on account team – see below for contact details. It will be necessary to include some evidence of the reduced liability with the letter.
Asking to be removed
If the VAT liability has fallen below the £2.3m threshold the business can ask to be removed from the scheme but HMRC will make the business stay in it for a further 6 months. As above the business needs to write to the payments on account team (see below for contact details) and include some evidence with the letter.
Moving to monthly VAT returns
Payments on account are an estimate (1/24th of the annual VAT liability) which in the current climate is likely to mean that many businesses will find that the payments due to HMRC are out of kilter with reality.
One possible solution is to move from quarterly to monthly VAT returns. This means the amount paid each month is based on current trading patterns rather than an historic estimate.
This is effected via the normal HMRC VAT log in or else by sending in a VAT 484 form to HMRC - download it here.
Paying the true monthly VAT liability
This is similar to filing monthly returns, in that the business can ask to be allowed to calculate the true net VAT due each month and pay that instead of the estimate. The business still files a quarterly return with a balancing payment but it means the interim payments are not estimates.
There are, however, a couple of challenges to be wary of here:
- If the business happens to be in a net repayment position in either month 1 or month 2 of the quarter, that will have to be carried forward to the end of the quarter
- If the business chooses this option it will have to keep using it for at least a year.
To request this, the business needs to write to the payments on account team – see below for contact details.
Contact details for HMRC's Payments on Account team:
To write to adjust your VAT Payments on Account arrangements, contact the team at HMRC at:
Payments on Account Team
Business, Tax and Customs, Liverpool
7th Floor, Regian House
Can we help?
If you need further advice about your VAT arrangements, please speak with your usual Shipleys contact or one of our specialist VAT team via firstname.lastname@example.org
Specific advice should be obtained before taking action, or refraining from taking action, in relation to this summary, if you would like advice or further information, please speak to your usual Shipleys contact.
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