Small Business VAT – Recent Changes and Schemes to Know About

Small Business VAT

The past few months have led many small businesses fighting for their survival. Your time has probably gone to figuring out the different resources available to keep your business going – from salary schemes to small business loans. But crucial small business VAT changes and schemes require your attention to ensure you keep your VAT payments in order. While two of these relate to the COVID-19 pandemic, one new VAT reduction will apply to small businesses even after the crisis is over.

Permanent VAT reduction for the supplies of e-publications

E-publications have grown in popularity in recent years, with many turning to digital services when it comes to books and magazines. The success of these services has become evident during the COVID-19 pandemic, with many of us stuck at home looking for things to do. To reflect the changing times, the UK Government has been looking to modernise the taxation of e-publications, resulting in a change to the VAT rate last month.

Previously, e-publications had the typical 20% VAT attached to them. The rate has now reduced to zero. The change happened seven months ahead of schedule, coming into effect on 1 May 2020.

The permanent 0% VAT rate applies to the following e-publications:

  • Electronic books
  • Electronic booklets, brochures, pamphlets, leaflets
  • Electronic newspapers, journals and periodicals, including magazines
  • Electronic versions of children’s picture and painting books

The sales of the above services are now subject to the same VAT rate as printed publications.

What rate to use with annual fees?

Since the VAT rate reduction happened in the middle of the year, small businesses might wonder which rate applies for subscriptions with annual fees, for example. You might have a digital service, such as a book club, that charges annual fees and those could have been charged already with the 20% VAT attached at the start of the year, for instance.

In these instances, your January VAT inclusion is correct because the payments would create a VAT tax point in January 2020 called the ‘actual tax point’. According to the ‘actual tax point’ rules, VAT is due according to invoice or payment date, whichever happens first.

However, you also have an opportunity to give VAT credit to your annual subscribers. The legislation allows the use of a ‘special change of rate provision’. It gives businesses the option to account VAT for the ‘basic tax point’ rather than the ‘actual tax point’. The ‘basic tax point’ occurs when the customer receives the service in question. It is an optional arrangement but one which you can opt to use if you prefer.

Temporary VAT reduction for personal protective equipment

The rate reduction didn’t apply only to supplies of e-publications. Another rate reduction took place on 1 May 2020. However, in the case of the reduction for personal protective equipment (PPE), the decrease is only temporary.

PPE equipment has zero-rate for the period from 1 May 2020 to 31 July 2020. After that, the VAT will increase back to 20%.

Choosing the right rate

You might also wonder what VAT rate applies in situations where a client ordered and paid PPE supplies in April 2020 but received them in May? Again, the advance payment in April would create an ‘actual tax point’ for VAT purposes. But the goods are received on a date when the zero-rate was enforced and this is the ‘basic tax point’. Therefore, zero-rating is available when the goods are supplied.

Cash accounting schemes and reduced rates

If your small business uses the cash accounting scheme, you need to pay extra attention to how the VAT rates impact you. If you are not using the special provisions mentioned above, then standard rated invoices raised before 1 May for e-publications or PPE will not be included on a VAT return until they are paid. Output tax is payable on the sales, whereas other receipts in May might be zero-rated.

Deferrals of VAT payments closing

Small business VAT payments were eased with an introduction of a VAT deferral scheme. However, the scheme is set to close on 30 June and normal payment systems resume from 1 July.

Those small businesses that are struggling to pay the VAT due 7 July for May VAT return because of COVID-19 can still get help. You can contact the Payment Support Service (PSS) and ask the option to partially pay the bill or to have all of the liability deferred. Please keep in mind that you’ll need a reasonable excuse and while coronavirus is accepted as one, you still have to show how you were affected by the pandemic.

It’s also worth noting that taxpayers currently have an extra three months to appeal. For example, if a VAT assessment raised issues on 31 March and was subject to the usual 30-day appeal deadline, you have three months to appeal. Instead of 30 April, your appeal deadline is 31 July for the above example.

Getting help with your small business VAT

It is easy to feel overwhelmed with everything going on right now. Many small businesses have been trying to simply survive and keeping in touch with all the other tax developments can seem difficult. But our experts are here to help you.

At Devonshire Green, we’ve worked with small businesses for years and looked after their tax affairs. Whether you need help dealing with HMRC or advice on how to tackle your VAT payments, we can help and guide you to the right resources. Contact us today and let’s sort out your small business VAT payments!