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Steve Allen of VAT Advisers Ltd highlights an important change in the treatment of VAT payments.

Introduction

HMRC have recently put an announcement on their website which says that, from 1 April 2010, there will be an important change in the Department’s definition of when a VAT cheque payment by post will be treated as ‘received’.

When is the Payment 'Received'?

From that date, all such VAT cheque payments will be treated by HMRC as being ‘received’ on the date that cleared funds reach HMRC’s bank account. Consequently, businesses will need to allow enough time for the payment to reach HMRC and clear into HMRC’s bank account on or before the due date of the relevant VAT return (note that the change does not affect any cheque payments made by Bank Giro). The announcement goes on to advise that if a cheque payment does not clear by the due date, the business may be liable to a surcharge for late payment.  There is then a recommendation to make VAT payments electronically as they are safe and secure and give up to seven extra calendar days to pay (or up to ten extra calendar days for payment by Direct Debit). The announcement closes with a reminder that if a business submits VAT returns online, it must pay electronically in any case.

It may just be a coincidence, but it is curious that this new definition has come in on the same day that online filing became compulsory for all new VAT registrations and existing VAT registrations with a turnover above £100,000. It is difficult to view it as anything other than a means of persuading those businesses with a turnover below £100,000, which can continue to use paper VAT returns for the time being if they so wish, to simply give up any such intention and register for online filing immediately.  [ See also HMRC's own article on TaxationWeb - VAT - Make The Switch to Online Filing - Ed. ]

More Surcharge Appeals?

The change of definition may well produce a flurry of surcharge appeal cases, with businesses arguing that the additional three working days needed for the cheques to clear is unreasonable. It might also be that the change has wider implications than perhaps was intended, as the date of payment can be a critical issue in other areas of the tax such as the cash accounting scheme. It remains to be seen whether this same ‘cleared funds’ definition will be applied to those things as well.