Following the latest Coronavirus relief measures, Glyn Edwards, VAT director at MHA MacIntyre Hudson, says that because of widespread order cancellations from consumers, HMRC should exempt businesses from paying VAT on retained deposits to support the leisure, hospitality and motor sectors.
“Many hotels, restaurants and car dealerships will have taken upfront payments for intended sales which will not now take place, as customers back out due to the coronavirus outbreak. Currently HMRC’s policy is that a supplier must account for VAT on all payments received for a supply, even if it does not take place. This also applies to any admin fees charged by a supplier to a customer who backs out.
“This policy is very recent and should be reversed given the current situation. A temporary suspension of the requirement to account for VAT on payments for unfulfilled supplies would prevent business from being hit twice: once with the loss of a sale and secondly having to account for VAT on what is usually just a small proportion of the expected sales income.
“Retained payments and deposits were largely outside the scope of VAT up until 1 March 2019. For example, a car dealer who accounted for VAT at the time of receiving a customer deposit could reverse this VAT if the customer cancelled the order and the dealer retained the deposit. The change in policy was prompted by the outcome of an Air France case in the EU courts, and the timing is very unfortunate for businesses.
“Exempting businesses from VAT on retained payments and deposits would simply be a return to what was, until recently, HMRC’s long-standing policy.”