COVID-19: VAT payment deferral

Last updated 9 June 2021

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 (including non-established taxable persons);
  • applied to payments due between 20 March 2020 and 30 June 2020 (except for VAT MOSS payments); and
  • was automatic, with no application or notification of HMRC required.

Businesses were not required to make VAT payments during the deferral period, and were instead initially given until 31 March 2021 to pay any liabilities which accumulated. However, it was further announced on 24 September 2020 in the Chancellor's Winter Economy Plan that, rather than paying in full at the end of March 2021, businesses will be able to choose to make up to 11 equal instalments over 2021-22 (see below).

HMRC did not charge interest or penalties on any amount deferred. However, during the deferral period, VAT returns still had to be filed, and the normal filing deadlines continued to apply.

The practical effect of the deferral is that payments for returns for the quarters ended 29 February 2020 (if not already paid by 20 March 2020), 31 March 2020 and 30 April 2020 do not have to be paid until 30 June 2021 (later if the business opts into the new payment scheme - see below).

Paying deferred VAT - the options available

Businesses that deferred VAT payments can either:

  • pay the deferred VAT in full on or before 30 June 2021;
  • sign up for the new payment scheme between 23 February and 21 June; or
  • contact HMRC by 30 June 2021 if they need more help to pay.

Failure to take one of these steps may result in interest or a penalty being charged.  The usual default surcharge rules for late paid VAT do not apply to deferred balances.  Instead Finance Act 2021 will provide for a new penalty specifically in respect of unpaid deferred VAT.  This penalty is set at 5% of the deferred VAT outstanding if businesses have not opted into the new payment scheme, or paid in full / made an alternative arrangement to pay, by 30 June 2021.

The VAT deferral new payment scheme – how it works

The new payment scheme allows businesses to make smaller monthly instalments, interest free. Businesses can select the number of monthly instalments they wish to make (up to a maximum of eleven).

The first instalment is payable at the time of joining the scheme, and we understand from HMRC that subsequent instalments have to be made in consecutive months.

The maximum number of instalments available to a business will be determined by when they join the scheme.

HMRC’s guidance includes the following table setting out the deadlines for joining (to allow for Direct Debit processing) and the corresponding number of maximum instalments available (including the first payment):

Join by

Maximum number of instalments available
19 March 2021 11
21 April 2021 10
19 May 2021 9
21 June 2021

8

 

Businesses can, if they wish, choose to pay in fewer instalments than the maximum set out above.

How to sign up for the new payment scheme

Online sign up for the new payment scheme is open for most businesses from 23 February to 21 June 2021. Businesses on the VAT Annual Accounting Scheme or Payment on Account Scheme were not able to join the scheme until 10 March 2021.

In order to join the scheme, businesses have to be up to date with their VAT returns and be able to pay by direct debit.

As the scheme requires a direct debit to be set up, businesses must opt in themselves and agents cannot do this on their behalf.

Before opting in, businesses must:

  • create their own Government Gateway account if they don't already have one;
  • submit any outstanding VAT returns from the last four years;
  • correct errors on their VAT returns as soon as possible;
  • decide the number of equal instalments they wish to make;
  • make sure they know how much they owe, including the amount originally deferred and how much they have already paid; and
  • be ready to make their first instalment payment.

If a business wants to join the new payment scheme, but cannot use the online service (for example because they do not have a UK bank account, can’t pay by direct debit or have dual signatories on their account) they should contact the COVID-19 helpline on 0800 024 1222.

More information can be found in HMRC's guidance on GOV.UK.