Businesses risk penalty if they forget to reinstate VAT direct debit

The Association of Taxation Technicians (ATT) is reminding businesses which have cancelled their direct debit in order to defer VAT payments, to set up a new one soon. Failure to get a direct debit set up in time could result in the business paying their VAT bill late - and ultimately result in a penalty charge.

The Association of Taxation Technicians (ATT) is reminding businesses which have cancelled their direct debit in order to defer VAT payments, to set up a new one soon. Failure to get a direct debit set up in time could result in the business paying their VAT bill late - and ultimately result in a penalty charge.

As part of the Government’s package of COVID-19 support, all UK VAT registered businesses have been able to defer VAT payments due between 20 March and 30 June 2020 until 31 March 2021 at the latest.

Those businesses that usually pay their VAT by direct debits were required to cancel their direct debit mandates in order to benefit from this deferral.

Michael Steed, Co-Chair of ATT’s Technical Steering Group, said:

“The VAT deferral ceases to apply from 1 July, meaning that from that date businesses will have to pay their VAT bills on the normal due date.

“If a business has previously cancelled their direct debit mandate in order to defer a VAT payment, they need to set up a new one in plenty of time to ensure that their next, non-deferred, VAT payment can be taken in time.”

HMRC recommends that new direct debit mandates be set up at least three working days before submitting a VAT return in order to ensure the amount is taken in time.1 

Michael Steed said:

“Businesses with a VAT quarter ending 31 May need to move quickly to make sure they set up their direct debit in time for payment to be taken by the 7 July 2020 deadline.

“Failure to get a direct debit set up in time could result in the business paying their VAT bill late, and ultimately result in them being charged a penalty.”2 


Notes for editors

  1. See Pay your VAT Bill
  2. Penalties for failure to pay VAT on time are dealt with under the default surcharge regime (see VAT Returns). Broadly, if a business either files their return late, or fails to pay the associated liability on time, HMRC record a ‘default’. Once two or more defaults occur within a 12-month period a penalty can be charged based on a percentage of the amount of VAT outstanding.
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