Under standard VAT accounting, you pay VAT on your sales regardless of whether your customer has paid you. Under the Cash Accounting Scheme, VAT does not need to be paid over until your customer has paid your invoice.

Your business can enter this scheme provided your estimated VAT taxable turnover for the next VAT year is not more than £1.35 million. You can continue to use the scheme until the VAT taxable turnover exceeds £1.6 million.

Using cash accounting may help your cash flow, especially if your customers are slow payers. If a customer never pays you, you do not have to pay VAT on that bad debt as long as you continue to use the Cash Accounting Scheme.

However, there are downsides to the use of this scheme. For example, you cannot reclaim VAT on your purchases until you have paid your suppliers. This can be a disadvantage if you buy most of your goods and services on credit. The scheme is also not advised if you regularly reclaim more VAT than you pay. You will usually receive your repayment later under cash accounting than under standard VAT accounting unless you pay for everything at the time of purchase.

If you are interested in using the scheme we can help you crunch the numbers to see if this is a viable option for your company.

To accommodate coronavirus disruption HMRC temporarily changed the time limit from 30 to 90 days for notifying a VAT option-to-tax for land and buildings. This extension was set to expire on 30 June 2020 but has been extended to 31 October 2020.

The option to tax rules allows businesses to make an election to standard rate the supply of most non-residential and commercial land and buildings. This means that subsequent supplies by the person making the option to tax will be subject to VAT at the standard rate.

The ability to convert the treatment of VAT exempt land and buildings to taxable can have many benefits. The main benefit is that the person making the option to tax will be able to recover VAT on costs (subject to the usual rules) associated with the property including the purchase and refurbishment of the property.

However, any subsequent sale or rental of the property will attract VAT. Where the purchaser or tenant is able recover the VAT charged this is not normally an issue. However, where the purchaser / tenant is not VAT registered or not fully taxable (such as bank) the VAT can become an additional (non-recoverable) cost.

Once an option to tax has been made it can only be revoked under limited circumstances. This includes within a specified 'cooling off' period in the first 6 months. An automatic revocation applies where no interest has been held for more than 6 years and after 20 years has elapsed.

HMRC has published new guidance for VAT registered businesses in the hospitality, holiday accommodation and attractions sectors. This new guidance follows the Chancellor’s announcement in the Summer Statement of a temporary reduction in the VAT rate from 20% to 5% from 15th July 2020 until 12th January 2021.

This means that until the 12th of January 2021, VAT charged on food, accommodation and certain attractions (such as eat-in or takeaway food in restaurants, cafes and pubs, cinemas, theme parks and zoos) will be reduced to 5%.

In respect of the VAT Flat Rate Scheme, the guidance states ‘If you are a small business and use the Flat Rate Scheme to simplify your VAT calculations you should be aware that certain percentages have been reduced in line with the introduction of the temporary reduced rate of VAT’.

The relevant link that displays the Flat Rate Scheme percentages do not appear to have changed as yet but are expected to be updated shortly. The change in flat rates should be made to affected clients' accounts software.

There are special rules for businesses established outside the EU submitting a claim for VAT incurred on goods or services bought in the UK. The exact rules that determine what VAT is refundable can be complex. There are also a number of conditions which must be met in order for a claim to qualify.

The deadline for the submission of a refund request for expenses incurred in the UK by non-EU businesses during the period 1 July 2018 – 30 June 2019 was 31 December 2019. HMRC has reported that due to the impact of Coronavirus there are some delays in making repayments. HMRC generally aims to process and refund overseas VAT claims within 6 months of the submission deadline of 31 December 2019 i.e. by 30 June 2020. HMRC now expects to pay valid 2018-2019 claims by 30 September 2020. HMRC will contact claimants whose VAT claims will not be paid by 30 September 2020 either because further information is needed or for any other reason.

HMRC is also reminding those concerned that claims for 2019-20 need to be submitted by 31 December 2020. One of the conditions for making a claim is for the claimant to obtain the required certificate of status from their official issuing authorities. This may not be possible due to measures taken by jurisdictions in response to Coronavirus. Claimants who submitted their VAT refund claim without a certificate of status will not have their claim rejected, but it will be put on hold until 31 December 2020. HMRC should be contacted for further case specific advice if obtaining a certificate of status before 31 December 2020 is likely to be problematic.

The VAT Flat Rate scheme is intended to simplify the way a business accounts for VAT and reduce the administration costs of complying with the VAT legislation. There can also be a decent VAT saving for those using the scheme.

The scheme is only open to businesses that expect their annual taxable turnover in the next 12 months to be no more than £150,000, excluding VAT. If you have clients whose turnover has reduced to this level as a result of the Coronavirus pandemic, then it may be worth reconsidering the scheme.

Under the Flat Rate scheme, businesses simply pay VAT as a fixed percentage of their VAT inclusive turnover. When using the scheme, the amount of VAT paid on business expenses becomes irrelevant. This is quite different to the normal VAT accounting procedure where simply putting the VAT paid to HMRC is the difference between the VAT charged to customers and the VAT paid on purchases.

The actual percentage used depends on the type of business. There are special rules for those classed as a limited cost business who must use a flat rate of 16.5%. This will negate the benefit of joining the scheme.

In addition to the turnover limit you cannot use the scheme if:

• You left the scheme in the last 12 months,
• You committed a VAT offence in the last 12 months,
• You joined or could have joined a VAT group in the last 24 months,
• You registered for VAT as a business division in the last 24 months
• Your business is associated with another business,
• You have joined a margin or capital goods scheme.

Once you join the scheme you can continue using the scheme once your total business income does not exceed £230,000 in a 12 month period. There are some special rules if the increased turnover is temporary. There is also a first year discount for businesses in their first year of VAT registration of 1%.

A voluntary VAT deregistration can be made if you do not expect your taxable turnover to exceed the VAT deregistration limit. The current deregistration limit is £83,000.

If you are running a small business that has been adversely affected by the Coronavirus pandemic, this could be an opportune time to consider whether or not to voluntarily deregister. The deregistration cannot be backdated and must be from a current or future date where you expect sales in the next 12 months to be less than £83,000.

A compulsory VAT deregistration is usually required if you:

• Stop making taxable supplies
• Sell your business
• Change legal status
• Disband a VAT group
• Join a VAT group
• Join the agricultural flat rate scheme

You will be required to submit a final VAT Return for the period up to and including the VAT deregistration date.

If you are considering voluntarily cancelling your VAT registration, there are a number of issues that must be considered. Whether or not this is a good idea depends on your specific circumstances. We would be happy to help you consider your options.

If you mainly sell goods or services to individuals who have not been able to reclaim the VAT you charge, deregistration may help you to restore a competitive advantage.

The VAT rule changes for building contractors and sub-contractors that were expected to come into effect on 1 October 2020 have been delayed for a further 5 months until 1 March 2021. The delay is due to the impact of the Coronavirus pandemic.

The new rules will make the supply of construction services between construction or building businesses subject to the domestic reverse charge. The reverse charge will only apply to supplies of specified construction services to other businesses in the construction sector. From 1 March 2021, sub-contractors will no longer add VAT to their supplies to most building customers, instead, contractors will be obliged to pay the deemed output VAT on behalf of their registered sub-contractor suppliers. This is known as the Domestic Reverse Charge.

Please note, although contractors will be responsible for paying the deemed output tax, on their VAT return they can usually claim back the same amount as input VAT.

The new rules were originally expected to come into force from 1 October 2019. The initial 12 month delay was announced following intense lobbying by the construction industry who had argued that many businesses in the sector were unprepared for the change.  HMRC have confirmed, that even with this additional delay, they remain committed to the implementation of the Domestic Reverse Charge.

There will also be an amendment to the original legislation, which was laid in April 2019, to make it a requirement that for businesses to be excluded from the reverse charge because they are end users or intermediary suppliers, they must inform their sub-contractors in writing that they are end users or intermediary suppliers. HMRC says that this change is designed to make sure both parties are clear whether the supply is excluded from the reverse charge.

The VAT bad debt relief rules allow businesses to claim bad debt relief and reclaim the VAT they have paid to HMRC. This can happen when an invoice has been issued to a customer and no payment has been received after an extended period of time (usually 6 months after the due date) has elapsed.

Under the normal VAT accounting rules, a business supplying goods or services usually accounts for VAT at the time an invoice is raised irrespective of whether payment has been received or not. There are a number of conditions which must be met in order to claim bad debt relief.

The conditions are set out in HMRC’s Notice 700/18 entitled Relief from VAT on bad debts:

1. You must already have accounted for the VAT on the supplies and paid it to HMRC.
2. You must have written off the debt in your day to day VAT accounts and transferred it to a separate bad debt account.
3. The value of the supply must not be more than the customary selling price.
4. The debt must not have been paid, sold or factored under a valid legal assignment.
5. The debt must have remained unpaid for a period of 6 months after the later of the time payment was due and payable and the date of the supply (one year after the date of supply for supplies made from 1 April 1989 to 31 March 1992), and
6. if the goods were supplied before 19 March 1997, ownership must have passed to your customer, or through the customer to a third party.
7. For supplies made to a VAT-registered customer between 26 November 1996 and 30 April 1997, you must send a notice to them. A copy of the notice must also be retained.

Businesses that account for VAT under the Cash Accounting Scheme and businesses that use certain retails schemes only pay VAT on the cash amounts they have actually received from customers. This makes bad debt relief claims unnecessary as VAT is only paid when the customer pays what is owed. Small businesses that suffer from a significant amount of bad debts should consider if it would be beneficial to apply to use the Cash Accounting Scheme.

It has been revealed by HM Treasury that the VAT collected on donated personal protective equipment (PPE) will be given to charities supporting the NHS and care workers. This measure will apply to all the VAT collected on donations made from 1 March until 30 April – the period between PPE donations starting and when the temporary zero VAT rate on PPE became effective on 1 May 2020.

The government donation will be made to support frontline workers affected by Covid-19 equally through the Care Workers Charity and NHS Charities Together. The donation which will be equivalent to the VAT collected is expected to be worth between £500,000 to £1 million. The Department for Health and Social Care will make the donation of the VAT on the government’s behalf.

Chief Secretary to the Treasury Steve Barclay said:

'Frontline health workers are fighting Coronavirus day in, day out – in our hospitals, care homes and communities. Whilst we will never be able to fully express our gratitude to them, we want these donations to be a small sign of our appreciation. From the Treasury and the whole government, we say thank you for all you are doing.'