We are all too aware how rapidly the COVID-19 crisis escalated. And, equally many of the Government’s funding and grant schemes were implemented rapidly, with urgency rather than clarity being the driver.
With that detail now available, HMRC are asking employers and individuals to inform HMRC if they believe they may have overclaimed the Coronavirus Job Retention Scheme (CJRS) or Self-employment Income Support Scheme (SEISS) grants and repay any excess before penalties apply. This is worthwhile checking as we understand a taxpayer who is investigated by HMRC and is found to have incorrectly claimed a CJRS or SEISS grant may be required to repay 150% to 200% of those funds.
With the first Eat Out to Help Out (EOTHO) scheme week all done, we hope that any clients participating have seen an upturn in customers as a result of the campaign. Continuing on the subject of detail, it appears more is required around EOTHO as this scheme is generating questions around the treatment of VAT.
Hopefully this latest update will help explain some of the detail on both these topics. If you require more information or want to double check your understanding then please do get in touch, we are here to help.
Penalties for Overclaimed COVID-19 Grants
We have mentioned before that if you believe you have overclaimed for any Coronavirus Job Retention Scheme (CJRS) grant you must contact HMRC and discuss how this may be paid back.
As the Finance Act 2020 has now become law, we would strongly encourage all of our clients who may have received CJRS or Self-employment Income Support Scheme (SEISS) grants to double-check their entitlement. The Act provides a 90-day period to inform HMRC of any overclaimed amount and also provides HMRC with powers to recover grant payments to which the recipient is not entitled, as well as to charge penalties.
The onus is on the taxpayer to notify HMRC if they have overclaimed and this must be done within 90 days of Royal Assent (by 20 October 2020) or 90 days of receipt of the grant, whichever is the later.
HMRC has published guidance on how to repay overclaimed CJRS and SEISS grants, as well as factsheets on how the penalty rules will be applied
- how to repay CJRS overclaims
- CJRS grants penalty rules
- how to repay SEISS overclaims
- SEISS grants penalty rules
It is important to note that error penalties may also apply if there are mistakes made when putting the grant figures on tax returns.
The key risks affecting entitlement to CJRS grants include:
- grants not used for the purposes for which they are intended;
- calculation errors; and
- employees working during periods that they are on furlough.
For SEISS grants the key risks affecting entitlement are:
- the trade was not adversely affected by coronavirus;
- the trade did not continue in the tax year 2019/20 (eg. because the business was incorporated); or
- there was no intention to continue to trade in the tax year 2020/21.
If you have any concerns please do contact the Partner who looks after your affairs. We are unable to make claims on behalf of our clients but we will be able to guide you through any difficulties you may have.
Eat Out to Help Out – How to Apply VAT
Some of our clients who are participating in the EOTHO scheme and offering the 50% reduction to customers, have been asking for clarification as to whether the VAT paid should be on the discounted or full amount?
The EOTHO discount can be applied to food and/or non-alcoholic drinks purchased for immediate consumption on premises, up to a maximum discount of £10 per diner (inclusive of VAT). This includes soft drinks and/or packaged snacks, again if they are for immediate consumption on the premises.
HMRC have confirmed that VAT will be due on the full value of the customer’s bill, before the discount has been applied. The logic behind this decision is that although the customer is only paying part of the bill themselves, the restaurant is still receiving full consideration for the food and drink supplied (the top-up being paid by HMRC).
In addition, alongside the EOTHO scheme there is a temporary reduced rating for VAT of 5% on catering supplies including non-alcoholic drink.
Example for meal for two people:
Food cost: £30
Non-alcoholic beverages: £10
Total bill: £40
Total paid by customer: £20
Total paid by scheme: £20 (50% of the total bill as it is all food and non-alcoholic beverages)
VAT due: 1/21 of £40 = £1.90 (1/21 is the VAT fraction to extract 5% VAT from a VAT inclusive price)
Remember that the temporary reduced rate doesn’t apply to sales of alcohol and neither does the EOTHO scheme
Example for meal for two people, including alcohol:
Food cost: £30
Alcoholic beverages: £10
Total bill: £40
Total paid by customer: £25 as alcoholic drinks do not count in the EOTHO scheme
Total paid by scheme: £15 (50% of the bill excluding alcohol)
VAT due on food: 1/21 of £30 = £1.43 (this is 5% VAT rate)
VAT due on alcohol: 1/6 of £10 = £1.67 (this is 20% VAT rate)
Total VAT due: £3.10
It is also worth noting that the VAT is due on the date the transaction takes place, ie. when the service is provided, and not when the EOTHO refund is paid. If your point of sale system will not allow you to reflect the VAT due accurately, you will be allowed to make a manual adjustment to your records to reflect the VAT that is due.
HMRC has issued detailed guidance on how the EOTHO scheme will operate. The guidance includes examples covering many different situations, meals purchased with or without alcohol and how it can be used with any other special offers being offered directly by your business. The guidance can be found here on the GOV.UK website.
If you do require any further help, or the guidance raises more questions than it answers please do get in touch.
Information correct as of 7 August 2020