VAT deferral announcement

DoctorStrange

The chancellor said yesterday that:

"To help businesses pay people and keep them in work I’m deferring the next quarter of VAT payments. That means no business will pay any VAT from now until the end of June.

‘And you’ll have until the end of the financial year to repay those bills. That’s a direct injection of over £30 billion of cash to businesses equivalent to 1.5% of GDP."

Is he merely talking help with cash flow here i.e. all VAT is still to be paid, but the Q1 payment can be delayed until Q2, and if you can't pay in Q2 you'll be given until the end of the financial year?

Or is it that VAT collected between yesterday and end June isn't payable to HMRC at all, and you have until the end of the financial year to pay the VAT collected between July and December?

His use of 'deferral' suggests this is just help with cash flow, but then he also says no business will pay VAT. He also says "until June" then "the end of the financial year" so there's some debate as to what he actually means.

Ordinarily of course one would expect this is simply an offer to help with cash flow but yesterday's announcements were unprecedented and it may actually be he's cut VAT for a quarter so I'm looking for others opinions on what he actually meant.

Dazed_and_C0nfused

AIUI yesterday's announcement meant payment of VAT for one quarter will be deferred, it won't be waived.

This is the text transcript from gov.uk which seems quite clear,

I’m also announcing today further cash flow support through the tax system.

To help businesses pay people and keep them in work, I am deferring the next quarter of VAT payments.

That means no business will pay any from now until the end of June; and you will have until the end of the financial year to repay those bills.

DoctorStrange

That's what I thought originally but a friend suggested otherwise and I can see why.

It's the words "no business will pay VAT until the end of June" and "have until the end of the year"

If it's just one quarter deferral, then April's payment is now due in July, so where does the end of the year come in?

I see the "cashflow help" wording on your transcript though which does suggest delay instead of relief. 

Thanks

Dazed_and_C0nfused

I would take it as the quarter not paid now needs to be paid by the end of the tax year.

No doubt more details will follow in the next day or three.

DoctorStrange

So you believe that Q1 can be paid next year, but Q2 is still due by Q3 as normal?

That makes sense - thanks again!

nick74

I believe it to mean a cash flow benefit from a delay in payment. Bear in mind that broadly speaking businesses don't really 'pay' VAT anyway. Consumers pay VAT, businesses just collect VAT from consumers on behalf of the government. 

DoctorStrange

nick74 said:

I believe it to mean a cash flow benefit from a delay in payment. Bear in mind that broadly speaking businesses don't really 'pay' VAT anyway. Consumers pay VAT, businesses just collect VAT from consumers on behalf of the government. 

Yeah agreed, but we've only to look at FlyBe and the APD issue to see that some businesses end up relying on it.

I guess I was hoping that he was essentially giving business a tax break for a quarter. To be honest, I'm not sure cashflow help is going to be enough given the scale of the crisis. Business needs grants, not loans, right now.

Waiving VAT for 3 months, then deferring the rest of the payments would been have far more help (obviously at a much greater cost) but hopefully the salary help will be enough

Thrugelmir

DoctorStrange said:

nick74 said:

I believe it to mean a cash flow benefit from a delay in payment. Bear in mind that broadly speaking businesses don't really 'pay' VAT anyway. Consumers pay VAT, businesses just collect VAT from consumers on behalf of the government. 

I guess I was hoping that he was essentially giving business a tax break for a quarter. To be honest, I'm not sure cashflow help is going to be enough given the scale of the crisis. Business needs grants, not loans, right now.

Companies are going to go under unfortunately. That's the nature of recessions. Best that the fittest and most well run survive.