At a glance
- VAT registered businesses were not required to make VAT payments that were due from 20 March 2020 to 30 June 2020.
- This relief was automatic: it did not need to be claimed.
- The VAT liability and payment were not cancelled, they were deferred.
- Any VAT liability will need to be settled by 31 March 2021 unless the payment scheme is used. See Overview tab.
- VAT refunds and reclaims were not affected.
- This deferral measure applied 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.
- Where VAT was paid by direct debit it was necessary for businesses to cancel the direct debit with their bank, if they wished to defer payment.
- HMRC confirmed that a refund could be claimed where a business failed to cancel their direct debit in time and that the quickest way to do this was to submit a direct debit indemnity claim to their bank. Alternatively, a refund could be claimed from HMRC but this may take longer. Source: ICAEW
- 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
What's new?
Budget 2021
Measures will be included in Finance Bill 2021 to:
- Legislate for the payment scheme.
- Charge a penalty of 5% of the deferred VAT outstanding if businesses have not opted into the payment scheme or made an alternative arrangement to pay by 30 June 2021.
- The normal Default Surcharge will not apply to deferred VAT.
Overview
Paying deferred VAT
On 24 September 2020, Chancellor Rishi Sunak announced a package of new measures to support the economy during the Coronavirus pandemic including additional time to pay deferred taxes.
- Businesses that 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 up to eleven interest-free instalments.
- This will be an opt-in scheme.
- All instalments must be paid by the end of March 2022.
- Businesses may select the number of instalments from two to 11 equal monthly payments if they join by 19 March 2021. Businesses who join by:
- 21 April 2021 will be able to have up to 10 instalments.
- 19 May 2021 will be able to have up to nine instalments.
- 21 June 2021 will be able to have up to eight instalments.
- To use the scheme, businesses must:
- Have deferred VAT to pay.
- Be up-to-date with their VAT returns.
- Opt-in: the payment scheme opened on 23 February 2021 and will close on 21 June 2021.
- Pay the first instalment when they opt-in.
- If businesses opt into the scheme, they can still have a Time to Pay arrangement for other HMRC debts and outstanding tax.
- In preparation to use the payment scheme, businesses must:
- Ensure they have a government gateway account.
- Submit any outstanding VAT returns from the last four years. It will not be possible to join the scheme if they have not done so.
- Correct errors on VAT returns as soon as possible. Corrections received after 31 December 2020 may not show in the deferred VAT balance.
- Make sure they know how much they owe, including the amount originally deferred and how much already paid (if any).
- Businesses should also:
- Pay what they can as soon as possible to allow HMRC to show the correct deferred VAT balance.
- Consider the number of equal instalments they will need, from two to 11 months.
- Agents cannot join the scheme on behalf of clients.
- A penalty of 5% of the deferred VAT outstanding will be charged if businesses have not opted into the payment scheme or made an alternative arrangement to pay by 30 June 2021.
How to pay deferred VAT or join the VAT deferral scheme?
Follow this link: HMRC: deferral of VAT payments
VAT errors in deferred period
- Where VAT errors are identified on a VAT return that relates to a period covered by the deferral, form VAT 652 should be completed and sent to the VAT error team.
- The error correction payment(s) can be included in the deferred balance by contacting HMRC's COVID-19 helpline after:
- HMRC have processed the error correction.
- A revised statement of account has been received.
- The balance may then be paid by 31 March 2021 or included in the subsequent deferral payment scheme, where the taxpayer opts in.
Including extra payments in the VAT deferral payment scheme
- HMRC's COVID-19 helpline must have been contacted by 29 January 2021 in order to include extra payments in the new deferral scheme, where they arise from:
- Confirmed error corrections.
- HMRC VAT assessments.
- If a revised statement of account has not been received by 29 January 2021 it may not be possible to defer the additional payments.
- Extra payments cannot be included after opting in: they will need to be paid by 31 March 2021.
Small print & links
Useful guides on this topic
COVID-19: Government support tracker
This tracker covers measures announced by the government to support individuals and businesses, as we get through COVID-19.
Time to Pay agreement
Business and self-employed taxpayers with outstanding tax liabilities may be eligible to receive support with their tax affairs through HMRC’s Time To Pay service.
Correcting VAT errors
What are the time limits? Can you do it through the VAT return? Do you have to notify HMRC?
