New VAT payment scheme for deferred VAT
Feb 15, 2021
PAGE UPDATED 16/02/21
One of the support measures introduced due to Covid-19 was a payment deferral for VAT. This was an automatic deferral, covering the period 20 March 2020 until 30 June 2020. You didn’t have to take advantage of the payment holiday, but if you did, you were given until the end of the 2020/21 tax year to pay any liabilities that accumulated during the deferral period.
As we approach closer to this deadline, with greater knowledge of how Covid-19 has affected businesses, HMRC has issued guidance on how to pay your deferred VAT, including details of a new payment scheme.
There are three options available:
- Pay your deferred VAT in full on or before 31 March 2021, as originally intended
- Opt into HMRC’s VAT deferral new payment scheme, an online service which is open between 23 February and 21 June 2021
- Contact HMRC if you need more help to pay – ring 0800 024 1222 by 30 June
What is the VAT new payment scheme?
HMRC’s new VAT payment scheme allows you to spread the cost of repaying your deferred VAT. Instead of paying the full amount by the end of March 2021, you can make up to 11 smaller monthly instalments, interest free. All instalments must be paid by the end of March 2022.
The scheme requires you to opt-in online. You have to do it yourself – your accountant can’t do it on your behalf. The scheme is open from 23 February until 21 June 2021. If you’re on the VAT Annual Accounting Scheme or the VAT Payment on Account Scheme, you’ll be invited to join the new payment scheme later in March 2021.
Once open, the scheme will allow you to
- pay your deferred VAT in instalments, without adding interest
- select the number of instalments, from 2 to 11 equal monthly payments. The later you join the scheme, the fewer instalments you’ll be able to select.
Am I eligible for the new payment scheme?
If you wish to use this scheme, you must meet the following criteria:
- you still have deferred VAT to pay
- you are fully up to date with submitting your VAT returns. If you haven’t submitted any outstanding VAT returns from the last 4 years you won’t be able to join the scheme
- you are able to set up payment of the deferred VAT by direct debit
- you pay the first instalment when you join
If you have any errors on your VAT returns make sure these are corrected as soon as possible. If HMRC receives your corrections after 31 December 2020 then they may not show in your deferred VAT balance.
Make sure you are fully aware of how much VAT you owe, including the amount you originally deferred and how much you may have already paid.
You’ll also need to set up a Government Gateway account if you don’t already have one.
The good news is that opting into the new VAT payment scheme does not preclude you from having a time to pay arrangement for other HMRC debts and outstanding tax.
Please talk to us if you would like any help with deciding on your options.