- Last Updated: 28 September 2020
COVID-19 VAT payment deferral measures for VAT registered business.
At a glance
What's new
Winter Economy plan
On 24 September 2020, Chancellor Rishi Sunak announced a package of new measures to support the economy during the Coronavirus pandemic including reduced VAT rates and additional time to pay deferred taxes.
- Businesses who deferred VAT payments which were due between 20 March 2020 and 30 June 2020 to 31 March 2021 will now be able to pay these in eleven interest-free instalments. This will be an opt-in scheme. More details of how to opt-in will follow in due course.
- The temporary VAT cut, to 5%, for the hospitality and tourism sectors, was due to end on 12 January 2021 but has been extended to 31 March 2021. See Summer Economic Update 2020: Temporary VAT cuts
Summer Economic update
VAT registered business are not required to make VAT payments that are due from 20 March 2020 to 30 June 2020.
This relief is automatic: it does not need to be claimed.
Your VAT liability and payment is not cancelled, it is deferred. Any VAT liability will need to be settled by 31 March 2021.
VAT refunds and reclaims are not affected.
This deferral measure will apply to VAT payments due for the VAT quarters:
- 29 February 2020: normal payment deadline 7 April.
- 31 March 2020: normal payment deadline 7 May.
- 30 April 2020: normal payment deadline 7 June.
Direct debits
If you pay your VAT by direct debit you must cancel the direct debit with your bank, if you wish to defer payment.
HMRC say, "Please do so in sufficient time so that HMRC do not attempt to automatically collect on receipt of your VAT return".
The Institute of Chartered Accountants in England and Wales (ICAEW) has made a request to HMRC to ask whether it can automatically stop the collection of VAT by direct debit. It would appear from the statement above that HMRC are unable to do this.
UPDATE 8/6: HMRC have confirmed that a refund can be claimed where a business failed to cancel their direct debit in time and that the quickest way to do this is to submit a direct debit indemnity claim to their bank. Alternatively a refund can be claimed from HMRC but this may take longer. Source: ICAEW
UPDATE 18/6: Businesses must remember to reinstate their direct debits in time for their first payment due date after 30 June 2020. See Reminder: Reinstate your direct debits for VAT
Client letter
Client letter template to explain: the VAT payment deferral mechanism
You may cut and paste this on to your own letterhead or email. Edit it to suit.
[Client name]
[Address/email]
Date:
Dear [name]
VAT payment deferral
VAT quarter to 29 February / 31 March / 30 April 2020 [delete to reflect the relevant quarter]
[I attach a copy of your VAT return for the quarter ending xxxxxxx 2020. We have checked this and submitted it to HMRC on your behalf.
Your VAT payment for the quarter is £xxxxxx.]
If you wish you can voluntarily defer payment of your VAT liability, for this quarter, until the end of the next tax year (i.e. you will not have to pay it until March 2021). This is optional, you can still pay it now if you want, it depends on you and whether your cash flow has been adversely affected by the COVID-19 crisis.
Under the government’s emergency measures for business, announced on 20 March 2020, VAT registered business are not required to make VAT payments that are due from 20 March 2020 to 30 June 2020.
This will apply to VAT payments due for the following VAT quarters:
- 29 February 2020: normal payment deadline 7 April.
- 31 March 2020: normal payment deadline 7 May.
- 30 April 2020: normal payment deadline 7 June.
This is an automatic relief that does not need to be claimed.
Your quarterly VAT payment is not cancelled, it will be deferred, and the VAT liability will need to be settled by the end of the 2020/21 tax year.
If you take up the deferral simply do not pay this quarter’s VAT bill. You are effectively receiving a loan by the government which is designed to assist your cash flow, the aim being that you can use the cash to tide you over the next few months.
You do not have to defer payment. If you feel that your cash flow is stable, you are free to make a payment on time, at the end of your VAT quarter in the normal way.
Payment by direct debit: action required
- If you have already agreed to pay VAT by direct debit you will need to cancel the direct debit with your bank before the payment is taken automatically.
- Please ensure that you give your bank enough notice to do this for you. HMRC cannot cancel the direct debit from its end.
If you have any queries about this or any other issues please do not hesitate to contact me.
Yours sincerely
[your name & details]
