March 2022 VATwatch

Making Tax Digital Reminder

Making Tax Digital (MTD) has already been in operation for all businesses with a turnover over £85,000. For period beginning on or after 1 April 2022, it will apply to all VAT registered businesses.

That means that all VAT returns must be filed using functional compatible software with the records kept in digital form.

In a few cases, for example where age, disability, or location, causes a barrier to digital record keeping, it may be possible to obtain an exemption.

If turnover is below £85,000, an alternative may be to deregister for VAT in some cases. 

Early Termination Payments

You may remember that HMRC previously released a number of briefs in relation to VAT on early termination payments. The first brief, in September 2020 stated that VAT would be due on all early termination payments in relation to VATable supplies. This guidance was suspended in January 2021 in response to industry representations of concern about the impact of dilapidations payments which were previously seen as outside the scope of VAT as compensation.

The new guidance comes into force on 1 April 2022.

The main impact of the revised policy is that fees charged when customers terminate a contract early will be regarded as further consideration for the contracted supply. For example, if a customer is charged a fee for exiting a mobile phone contract early, or if they terminate a car hire contract early, it will be liable for VAT.

The brief links to detailed notes in the HMRC manuals explaining exactly how the new rules should apply.

Postponed Import VAT Accounting and the Flat Rate Scheme

Postponed import VAT accounting was introduced on 1 January 2021 and allows a business bringing goods into the UK to account for import VAT on their next VAT Return rather than paying it up front at the border.

Businesses registered under the Flat Rate Scheme were asked to include imports accounted for using postponed VAT accounting in the turnover that is subject to the flat rate percentage.

In fact, the correct treatment is to calculate the flat rate VAT on the normal turnover, and then to add the import VAT to the box 1 figure.

The new guidance must be adopted for periods beginning on or after 1 June 2022 and businesses can make error correction claims if they have previously overpaid VAT as a result of the incorrect guidance.  If VAT was previously underpaid as a result of following the guidance, there is no need to correct it.

HMRC Helpline Closures

HMRC has announced that following the trial of closing the VAT helpline to allow it to concentrate on reducing the post backlog, there will be a further series of helpline closures on a Friday during February and March. The trial in December 2021 enabled HMRC to clear far more of the post backlog than it predicted.

The helpline will be closed on the following dates:

·       11 March 2022

·       18 March 2022

·       25 March 2022 

Thank you for taking the time to read this VATwatch round-up.