Paying VAT deferred because of Coronavirus

07 Dec 2020

HMRC have announced details of how businesses can spread the repayment of VAT payments they deferred between 20 March and 30 June this year.  The original terms of the deferral where that the VAT deferred was due to be paid in full by 31 March 2021 but earlier this Autumn the Chancellor announced that businesses would be able to spread the repayment of this amount over 11 monthly instalments with the amount to be paid in full by the end of March 2022. 

 The key points of the new scheme are:

  •  The scheme is not automatic – businesses must opt into the scheme.  If they do not opt in the VAT will remain payable by 31 March 2021 as under the original terms of the deferral

  • On entering the scheme a business will be able to choose to pay the VAT in between 2 and 11 monthly instalments

  • Interest will not be charged on instalment payments

  • In order to use the scheme, as well as still having deferred VAT to pay the business must be up to date with their VAT returns and be able to pay VAT by direct debit.

Getting ready

 The system to allow business to opt into the scheme is not yet available (it is expected to come online in early 2021) but the Government is encouraging businesses to take steps to prepare.  Before opting into the scheme a business will need to:

  • Create their own Government Gateway account if they do not already have one

  • Submit any outstanding VAT returns from the last 4 years. They will not be able to join the scheme if they have not done so

  • Correct any errors on their VAT returns as soon as possible. Corrections received after 31 December 2020 may not show in the business’s deferred VAT balance

  • Make sure they know how much they owe, including the amount they originally deferred and how much they may have already paid

 Aside from ensuring a business meets the above criteria it does not appear that there will be any financial checks undertaken by HMRC before allowing a business to enter but the Government is encouraging businesses to pay what they can up front and defer only those amounts they cannot immediately pay. 

 If businesses still consider that they will have problems paying their deferred VAT or indeed any other liabilities they still have the option to enter into a time to pay arrangement with HMRC – details can be found via this link: .  Deferring VAT under this new scheme will not prevent a business for agreeing time to pay arrangements in respect of other taxes.

WR Partners comment

This scheme was announced some time ago and further detail is welcome.  It is very clear however that the Government still expects this VAT to be paid – there is no suggestion any such debts are likely to be written off. 

For those businesses still severely affected by Coronavirus even paying by instalments may create pressure on cashflow, especially if the instalments coincide with other amounts such as the first repayments of Bounceback/CBILS loans and income tax self-assessment payments.  

Understanding the cashflow impact of these payments well in advance will be critically important – we can assist with modelling your future cashflows to enable you to understand where pressure points may arise and put in place plans to address them.  Get in touch with your normal WR Partners contact for more details.

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