Deferred VAT Deadline Looms

Businesses that deferred their VAT payments last year have less than a month left to join an online payment scheme.  Payments deferred from the early stages of the pandemic which remain outstanding need to be paid by the end of June in order to avoid penalties.  To benefit from further deferral, businesses have until 21 June to sign up for a monthly payment option.

Deferment of VAT payments

When the coronavirus pandemic struck, over half a million businesses deferred VAT payments due between March and June 2020 under the VAT Payment Deferral Scheme.  In total payments worth over £34 billion have been deferred and businesses had until 31 March 2021 to pay this deferred VAT.  If they could not afford to do so, they could go online from 23 February to set up a new payment scheme and pay by monthly instalments to spread the cost.

But not every business has signed up yet.

Jim Harra, HMRC’s Chief Executive, said ‘they should act now to avoid missing out on this opportunity to spread payment of their deferred VAT across monthly, interest-free, instalments’.  The VAT Deferral New Payment Scheme means businesses can now manage their cashflow by paying their deferred VAT more gradually, continuing to protect jobs as the UK emerges from the pandemic.

Penalties

The usual default surcharge rules for late paid VAT do not apply to deferred balances.  Instead, clause 99 and Schedule 19 of Finance Bill 2021 (which is currently making its way through the House of Lords) provide for a new penalty specifically in respect of unpaid deferred VAT.

This penalty is set at five percent of the deferred VAT outstanding if businesses have not opted into the new payment scheme, paid in full, or made an alternative arrangement to pay, by June 30, 2021.

Options

Aside from the scheme, there are two other options available to business: Either paying the outstanding Vat in full or contacting HMRC to make alternative arrangements.  As of 30 April 2021, only 228,850 businesses that deferred their VAT last year have paid their VAT in full. This suggests that, for many, signing up to the scheme would be beneficial.  Those unable to pay in full by 30 June and unable to sign up to the scheme should contact HMRC as soon as possible in order to avoid a penalty.

VAT Payment Deferral Scheme

In order to join, businesses must be up to date with their VAT returns and be able to pay by direct debit.  Businesses must opt in themselves and agents cannot do this on their behalf.

Before opting in, businesses must:

• create their own Government Gateway account if they don’t already have one;
• submit any outstanding VAT returns from the last four years;
• correct errors on their VAT returns as soon as possible;
• decide the number of equal instalments they wish to make;
• make sure they know how much they owe, including the amount originally deferred and how much they have already paid; and
• be ready to make their first instalment payment.
• Details are explained in full here,

The number of instalments available to businesses depends on when they opt into the scheme.  The number available reduces over time.  Signing up now will allow a business to spread the deferred VAT payments over eight instalments.

Payments can be set up via the VAT Deferral New Payment Scheme portal.

Overseas businesses

If a business wants to join the new payment scheme, but cannot use the online service (for example because they do not have a UK bank account, can’t pay by direct debit or have dual signatories on their account) they should contact the COVID-19 helpline.

The online portal for the new payment scheme closes on 21 June 2021.  If you require any advice regarding the payment of your business’ deferred VAT, we would be happy to assist.  All you need to do is contact briars.