Reinstating Direct Debits for VAT payments
Jun 25, 2020
Part of the government’s support package to help businesses through the impact of Covid-19 was the deferral of VAT payments. This deferral period comes to an end on 30 June, and so you now need to reinstate your direct debit mandate.
The VAT payment deferral means that all UK VAT-registered businesses have the option to defer VAT payments due between 20 March and 30 June 2020. These payments must then be settled by 31 March 2021.
However, you need to remember to reinstate your direct debit mandate, so that it’s in place in time for future VAT payments which are due from July 2020 onwards. You should make sure any outstanding VAT returns have been filed, and you should allow three working days in order to reinstate the direct debit mandate. Accountants cannot set up direct debit mandates on behalf of their clients; you will need to set this up through your business tax account.
HMRC will be issuing further guidance on the end of the VAT deferral period, but it has confirmed that it will not collect the outstanding balance of deferred VAT when the direct debit mandate is reinstated. HMRC has made the necessary systems change to avoid this happening automatically for businesses in MTD for VAT.
What if I didn’t manage to cancel my direct debit?
If you wanted to defer your VAT payment between 20 March and 30 June, but you didn’t manage to cancel your direct debit in time, you can claim a refund.
The fastest way to do this is to contact your bank and state that you wish to claim a refund under the Direct Debit Indemnity Scheme (DDI). There is no time limit for making this request. If you prefer to receive a repayment from HMRC rather than your bank, you must ensure that your bank details are updated using the online services. You need to allow up to 21 days for the refund to be received from HMRC.
What if I can’t pay my VAT due by 7 July?
If the ongoing impact of Covid-19 means that you cannot pay your next VAT bill after the end of the payment deferral window, you may be able to negotiate a ‘time to pay’ agreement with HMRC. It’s important to contact HMRC before the VAT is due, so that you’re not then liable for a surcharge. Make sure you have all the details to hand, and try to pay at least some of amount due rather than asking to defer the whole payment. You can contact HMRC’s Payment Support Service on 0300 200 3835 – 8am-4pm Monday to Friday.
Rather than asking HMRC for the maximum time they will allow you to pay, it’s better to calculate how much you can afford to pay and when, and then justify this to HMRC. You’ll need to explain exactly how Covid-19 has affected your ability to pay.
If you have any questions about VAT payments then please get in touch and we’ll happily assist.