There’s something incredibly satisfying about completing a VAT return and realising that the taxman actually owes you money. For most businesses, it happens when they make a major investment in equipment or other high-ticket items. This can mean you pay out more VAT than you collect during the relevant quarter. HMRC then has to pay you the VAT it owes within a certain timeframe. If it is late in paying, it currently has to add a VAT Repayment Supplement.
However, the VAT Repayment Supplement will soon be scrapped, leaving many businesses wondering what will replace it.
In this post, we’ll update you about the changes. But first, let’s take a quick look at the current system.
The current VAT Repayment Supplement scheme
Currently, if you submit a VAT return and HMRC owes you money as a result, it should process the repayment within 30 calendar days. The rules are slightly different if HMRC decides to make enquiries into the claim. In this case, repayment should be within 30 days, plus the number of days spent making ‘reasonable enquiries’.
If HMRC doesn’t repay the VAT within this timeframe, then the VAT Repayment Supplement kicks in. This means that you get an extra 5% of the repayment amount, or £50 (if that is the greater sum).
Let’s take an example. Under the current rules, you submit a VAT return which tells HMRC it owes you a £50,000 repayment. HMRC makes no enquiries, but it also doesn’t make the repayment until 40 days after you submitted the return. As a result, your repayment should now be £52,500 (£50,000 plus a 5% supplement of £2,500).
How the new VAT supplement scheme works
The replacement for the VAT Repayment Supplement Scheme comes into effect on 1st April 2022.
There’s one positive aspect to it. If the taxman delays your repayment to undertake an enquiry, HMRC will pay interest for the number of days it takes.
Sadly, the good news ends there. From the same date, the 5% supplement will also be replaced by interest payments instead. The rate currently stands at 0.5%.
Going back to the example of the £50,000 repayment, the new rules mean that a 10-day delay would give you peanuts in interest, rather than a handy £2,500!
What happens next?
As things stand, our worry is that HMRC will take longer over any future VAT enquiries. If delay is only costing them 0.5% interest on your repayment instead of substantial 5% of the total, there’s bound to be a temptation for the taxman to drag his feet.
For this reason alone, it’s crucial that your VAT returns are as well prepared and accurate as possible. The better your accounts, the fewer holes the taxman can pick in them!
At THP, we can help you make sure your VAT returns are in tip-top condition, as well as advise you on the current VAT Repayment Supplement and its replacement scheme. If you’d like any help with either, please drop us a line today.
About Karen Jones
Having worked for one of the world’s largest accountancy firms, Karen Jones uses her tax knowledge and skills to help clients obtain substantial reductions to their tax liabilities.
With an expanding portfolio of tax clients, Karen enjoys the variety her work brings her and particularly likes working with new businesses and people. With a growing number of tax clients, she frequently faces a variety of challenges and relishes the experience she gains as she solves them.
Karen likes the THP ethos: “I like the way the team has a professional, but friendly and down-to-earth approach – it creates a productive atmosphere that benefits everyone.”
Karen’s specialist skills:
- Personal Taxation
- Tax Efficient Planning
- Trust Administration