COVID-19 left many businesses facing financial hardship in 2020. As a way to ease some of the pressure, HMRC allowed the payment of VAT due between 20 March 2020 and 20 June 2020 to be deferred until 31 March 2021.
The adjusted deadline is now here, yet the UK is still caught in the throes of the pandemic. Rather than insist on immediate payment in full, HMRC has unveiled a raft of measures that will give businesses a number of options.
Here’s what the updated HMRC guidelines on VAT deferral say.
What Happens Now?
Last year, 31 March 2021 seemed a very long way in the future but now that it’s here, many businesses still find themselves in financial straits. As a result, HMRC is offering a number of different options for VAT payment:
- Pay the VAT due in full prior to the 31 March 2021 deadline
- Register with the new VAT deferral scheme which offers predetermined instalments
- Speak to HMRC to request an individual Time to Pay agreement
If you are able to pay your VAT bill in full, you should make sure you do so by 31st March 2021 to avoid any penalties.
If you are unable to pay your VAT bill in full by 31st March 2021, you must register with the VAT deferral scheme by 21st June 2021, or have an individual Time to Pay arrangement in place by 30th June 2021.
How the Scheme Works
When you join the VAT deferral scheme, you must be ready to make your first payment. However, the sooner you join, the greater the number of instalments you’ll be offered to spread out your repayments:
- Join by 19 March 2021 – 11 instalments
- Join by 21 April 2021 – 10 instalments
- Join by 19 May 2021 – 9 instalments
- Join by 21 June 2021 – 8 instalments
You can pay off your VAT more quickly if you prefer. These are the maximum number of instalments that HMRC will accept.
Criteria to Join
The VAT deferral payment scheme opened on 23 February 2021 and will remain open for registration up to 21 June 2021. You must register to join by 21 June 2021 to escape a penalty for late payment.
If you are registered with the VAT Payment on Account Scheme or the VAT Annual Accounting Scheme you should automatically receive an invite to join sometime in March 2021. You don’t need to wait for this to register; you can sign up straight away but you must be ready to make an initial payment.
The service is being offered to both sole traders and businesses who are registered for VAT who meet the following criteria:
- You have deferred VAT outstanding
- You are able to join yourself – your accountant cannot do it for you
- You know what VAT is due, and what you have already paid
- Your VAT returns are up to date
- Your VAT returns (which have been deferred) have no errors
- You have a Government Gateway account online
- You can pay the instalments by direct debit
- You are ready to make the first payment when you join
- You apply to join by 21st June
You can still register with this VAT deferred payment scheme even if you already have an existing Time to Pay agreement, or you have other outstanding tax that’s due.
What If I Don’t Meet the Criteria?
HMRC accept that in a minority of cases, there might be some people who are unable to access the online scheme because they don’t hold a UK bank account, cannot set up a direct debit or perhaps have joint signatories on an account.
They have suggested that anyone who wants to use the scheme offline contacts them directly. A dedicated hotline number has been set up for VAT deferral queries: 0800 024 1222.
Check Your Figures
While it’s essential that you don’t ignore your outstanding VAT, it’s important to make sure your figures are accurate first. Any corrections which need to be submitted to HMRC after 31 March 2021 can’t be included in the deferral scheme.
If you were subject to an HMRC VAT compliance check, they may contact you separately if they believe additional payments may be due.
Although your accountant can’t sign up to the deferral scheme on your behalf, it’s a good idea to check your VAT figures with them first. With accurate VAT returns essential, your accountant can help to ensure that everything is correct.