VAT Deferral – New Payment Scheme
If you deferred VAT payments between March and June 2020, you can now spread the cost over smaller monthly instalments.
As part of the initial COVID-19 support measures, businesses were allowed to defer VAT payments due between 20 March and 30 June 2020. This deferred VAT was originally due to be paid in full by 31 March 2021.
Recognising that many businesses are still facing cash flow difficulties, HMRC has introduced the VAT Deferral New Payment Scheme. This scheme allows businesses to pay their deferred VAT in up to 11 smaller, interest-free monthly instalments, rather than a single lump sum.
How the scheme works
To use the scheme, you must opt in; it is not applied automatically. The portal for joining the scheme opens in late February 2021 and closes on 21 June 2021. The earlier you join, the more months you have to spread the payments across. For example, if you join by 19 March, you can spread the cost over 11 instalments. If you wait until June to join, you will have fewer months to pay, meaning each instalment will be higher.
Eligibility criteria
To be eligible for the new payment scheme, you must still owe deferred VAT from the relevant period. You must also be up to date with your current VAT returns and have the ability to pay the deferred VAT by Direct Debit. If you are unable to use Direct Debit, or if you are struggling to meet the terms of the scheme, you must contact HMRC's Time to Pay service to arrange an alternative payment plan.
Penalties for non-compliance
It is crucial to take action before 30 June 2021. If you do not pay the deferred VAT in full, opt into the new payment scheme, or agree an alternative Time to Pay arrangement by this date, HMRC may apply a 5% penalty or charge interest on the outstanding amount. Do not ignore the liability; engaging with HMRC early is the best way to avoid additional costs.
Disclaimer
The information contained in this article is for general guidance on matters of interest only. It should not be used as a substitute for consultation with professional accounting, tax, legal, or other competent advisers. Before making any decision or taking any action, you should consult a Kingscott Dix professional.