The Coronavirus has had a significant impact on both landlords and their tenants. Landlords are facing significant uncertainty and reductions in their income, with resultant impacts on their cash flow position.
Various potential options are available to landlords to assist with cash flow in the current climate, with key considerations summarised below.
Considerations for VAT-registered landlords
VAT payment deferral
It was possible for businesses to defer their VAT payments due in the period from 20 March 2020 to 30 June 2020. Any deferred VAT payments are payable by no later than 31 March 2021.
Time to Pay arrangements
Landlords can enter into Time to Pay payment agreements with HM Revenue & Customs (HMRC) where they are experiencing cash flow issues. This may be of particular benefit in relation to deferred VAT payments becoming due by 31 March 2021.
Demands for payment in place of VAT invoices
Landlords may wish to issue a ‘demand for payment’ to tenants in place of a VAT invoice. In this case, accounting for the VAT will be delayed until once payment is received. The landlord should issue a VAT invoice once payments have been received.
Where the taxable turnover of a property rental business is under £1.35 million it may be beneficial to adopt the VAT cash accounting basis. Under the scheme, VAT is accounted for when payment is received, which may benefit where tenants are delaying payments.
Bad debt relief
Where a debt remains outstanding for six months, landlords can claim automatic bad debt relief, reducing the output VAT due on their sales.
Further reading and information:
- Deferring VAT payment
- Cash flow opportunities
- VAT support measures available as a result of Coronavirus
Negotiation with tenants
Legislative changes mean that normal landlord rights have been curtailed, particularly in respect of forfeit leases for non-payment of rent, until 30 June 2020.
It may be beneficial for landlords to negotiate with tenants where possible for a mutually beneficial outcome. Examples might include monthly rather than quarterly rental payments, deferral of rent payments, a reduced rental period, or agreement of a rent-free period in exchange for an increase in the term of the lease.
Extended accounting periods and use of tax losses
For companies, it may be beneficial to extend their normal accounting period to include loss-making periods following the Coronavirus outbreak. This provides access to tax relief from any losses sooner and trading losses can be carried back to earlier periods.
It is also important that UK companies keep track of any trading losses arising during the current situation to enable them to take advantage should HMRC introduce measures to enable businesses to obtain loss relief sooner.
Repayment of Quarterly Instalment Payments (QIPs)
Companies which fall within the QIP regime may seek repayment from HMRC of QIPs where the company has grounds for believing the circumstances since the instalments were paid have changed and its corporation tax liability was over-estimated.
HMRC has also updated its guidance to confirm that, in addition to the current period, companies may claim repayment of QIPs for the prior period where evidence is provided that losses will be available to carry back and offset against income.
Companies should also consider whether they may fall outside of the QIP regime where their taxable profits will be minimal for the accounting period.
Mortgage holiday payment
Buy-to-let landlords may be able to take advantages of a mortgage payment holiday where available from their mortgage lender.
Further reading and information:
- Coronavirus: issues for property owners and occupiers
- The importance of keeping track of tax losses
- Covid-19-related rent concessions and IFRS reporting
You can find all of the latest announcements about government support for individuals and businesses on our Coronavirus hub.