Optimising VAT to minimise the impact of COVID-19

Last updated: 27 March 2020

HMRC have announced deferral of VAT payments due before 30 June 2020, but there are a number of options open to VAT registered entities to optimise VAT flows:

• If the business is, or will be in a repayment position as a result of reduced turnover, consider applying for monthly VAT returns which will speed up VAT repayments.
• Consider the timing of sales invoices in relation to VAT return periods, to maximise the time allowed to defer the point when VAT becomes accountable to HMRC.
• Consider whether the business is able to claim VAT on expenditure earlier by amending accounting processes.
• Consider whether your business can legitimately defer VAT payment by issuing ‘requests for payment’ instead of issuing a tax invoice before payment.
• Ensure your business can identify and claim VAT bad debt relief, on outstanding invoices and where appropriate, remind customers if they don’t pay within 6 months it can affect their right to input tax recovery.
• Consider available VAT schemes such as cash or annual accounting. We can advise if these are suitable for your business.

Other areas where VAT optimisation might be considered are:

• The operation of any partial exemption or VAT recovery methods, particularly if the business is using a turnover based method. It might be prudent to agree a temporary alternative method with HMRC depending on your circumstances, particularly if trading has ceased altogether. 
• The adjustment of VAT previously incurred on capital items (such as building works) could be affected by reductions in taxable turnover – consider whether you need to plan for this.
• Now may be good time to review the process of attributing VAT on costs, to check you are deducting all the VAT you could be.
• For the charity sector, maximising the use of zero or reduced rate reliefs where possible will also be important in minimising costs.
• HMRC have announced that the zero rate supplies of certain e-publications will now take effect from 1 May 2020 rather than 1 December 2020, following the outbreak of COVID-19. Suppliers of e-publications will be able to zero rate sales to UK customers, and non-profit membership organisations which supply e-publications as part of their membership fees may be able to reduce the VAT they charge.