To support businesses during the COVID-19 crisis, the Government announced on 20 March 2020 that certain VAT payments could be deferred.
This deferral was available to all UK VAT registered businesses and was automatically applied to all payments due between 20 March 2020 and 30 June 2020. Under the terms of the original scheme, the deferred liabilities were due to be paid on or before 31 March 2021.
Ahead of this upcoming deadline, HMRC are offering a “payment scheme” which will allow businesses to pay their deferred VAT bills by 31 March 2022 in up to 11 interest free instalments.
This scheme opens on 23 February 2021 and will remain open until 21 June 2021, and there are some criteria that must be met for a business to be eligible for the scheme.
Criteria for joining the scheme
Businesses need to apply to use the scheme themselves – accountants and tax agents cannot apply for the scheme on behalf of businesses – and the first instalment needs to be paid upon joining the scheme.
Any deferred VAT bills need to be paid in full by 31 March 2022, so the number of instalments available to a business depends on when they sign up to the scheme.
Signing up in the first month of the scheme entitles a business to 11 instalments, in the second month it is 10 instalments, and so on. An earlier sign up may therefore be beneficial for long term cashflow.
All VAT filings must be up to date and a business must not have any outstanding VAT returns from the last 4 years.
Interest may be charged by HMRC if a business does not pay its deferred VAT liability by 31 March 2021 or agree an extra help to pay arrangement with HMRC by 30 June 2021.
Alternatively, if a business opts to use the payment scheme, then interest may be charged if the scheme is not opted into by 21 June 2021.
If you have any queries about how the VAT deferral payment scheme may affect you, please do get in touch with your normal RG contact.