Two bits of relevant and UpToDate information which you may wish to look at, the first relates to the arrangements to Pay Deferred Vat relating to the period 20 March to 30 June 2020 and the second exemptions relating to the Exemptions relating to the Domestic Reverse Charge (DRC) coming into effect from the 1st March 2021.
Deferred VAT payments (Period 20 March to 30 June 2020)
All VAT registered businesses had their VAT payments deferred automatically, for amounts due to be paid in the period 20 March to 30 June 2020. The direct debit to pay that VAT was not collected by HMRC, and no interest has been charged on that debt.
Those businesses could pay that VAT debt at any time, but now they must pay it in full by 31 March 2021 or make arrangements with HMRC to spread the payment of the debt over a number of months.
The online portal through which to apply to spread the deferred VAT will be open from 23 February to 21 June 2021. To avoid interest and penalties being charged on the deferred VAT the business must either use this portal to opt into a payment scheme, or contract HMRC by phone on: 0800 024 1222 by 30 June 2021.
We as your accountants can’t arrange a VAT payment plan on your behalf as we won’t have authority to agree to make payments from the clients bank accounts, so the clients have to take action themselves. However, the good news is that HMRC will allow businesses to arrange a payment plan for deferred VAT even if they have already entered a time to pay arrangement for other taxes.
Before a business can use the online portal to spread their deferred VAT it must have submitted all outstanding VAT returns. It must also have enough cash to pay the first instalment of the VAT immediately, and set up a direct debit to pay the remainder of the debt by monthly payments. Where a direct debit can’t be set up the business owner must call HMRC on 0800 024 1222.
The Government wants all of the deferred VAT paid by 31 January 2022, so the later the business signs up to spread the payments, the fewer instalments will be available to it. For example, if the business joins the scheme by 19 March it can spread the payments over 11 instalments starting in March, but if it joins in June 2021 it can only spread the debt over eight instalments. For details click on the link below
Domestic Reverse Charge (DRC) —EXEMPTIONS
We outlined the domestic reverse charge (DRC) conditions in our previous emails, new conditions and exemptions have been clarified recently.
The 5% disregard rule applies where the invoice includes both work subject to the DRC and items which are not subject to the DRC. If the DRC work does not exceed 5% of the total invoice value the whole invoice can be treated as being outside of DRC and VAT at the relevant rates should be applied to the entire invoice.
Remember the DRC never applies to zero-rated work.
The 5% exemption could apply where a subcontractor is undertaking a range of tasks on new homes. The cost of labour will be zero-rated (not within DRC) as it is a supply of building work on new homes, but the supply of materials such as carpets, will be standard rated (within DRC).
If the labour is more than 5% of the total invoice value the whole invoice is outside of DRC. This applies even if the labour and materials are charged as one item as “supply and fit”, see section 16 of the DRC technical guidance.
The following construction related services which are always excluded from DRC:
- goods supplied on hire without labour
- professional fees such as from surveyors and architects
- employment businesses supplying staff
The last point is one to watch out for, as employment agencies should apply VAT to their invoices of labour to building firms.
We are happy to help you sort the DRC from the non-DRC supplies, and answer any other VAT questions you have.