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Deferred VAT New Payment Scheme

Paying Deferred VAT

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HMRC have provided further detail on paying the VAT which businesses were allowed to defer between 20 March and 30 June 2020.

At the time, HMRC said that all of the deferred VAT would need to be paid before 31 March 2021.  They announced in the autumn, that a system would be put in place to allow the VAT to be paid by instalments starting in March 2021.

Businesses which are unable to pay their VAT bills are always entitled to ask HMRC for Time to Pay.  Whether their application is successful or not will usually depend on why the business cannot pay on time and what other avenues have been explored to secure funding.  It has long been HMRC’s position that they should not be used as a cheap source of finance for businesses.

Once a Time to Pay arrangement has been made, and so long as payments are received by the time agreed, no interest is charged and collection action should not be taken. 

New Payment Scheme

In anticipation that very many businesses will need extra time to pay the VAT which they deferred last spring, HMRC has devised a standard instalment plan, which does not require the business to submit additional information regarding its finances and enter into negotiations with HMRC.  Businesses can sign up via a new portal, which will open on 23 February 2021.  If they sign up by 20 March, they will be able to pay by up to 11 equal instalments, taken by direct debit, to clear their deferred VAT liability.  Businesses signing up later, up to 21 June, can still use the simplified application, but will have to pay by fewer instalments. 

Other Options for payment

Any business which is able to pay before 31 March is still entitled to do so, without making any special arrangements. 

Businesses that are not able to use the new standard instalment method, either because they have not got sufficient funds or cannot pay by direct debit, must still contact HMRC to arrange how the deferred VAT will be repaid.

If businesses do not either pay, sign up for instalments or contact HMRC to arrange a bespoke Time to Pay arrangement they will start to incur interest on the outstanding amounts and HMRC may start to try to enforce collection.

How to apply

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The portal opens for applications on 23 February and businesses must apply before 21 June.   If they need to arrange a bespoke Time to Pay arrangement this must be done before 30 June.  If they do not intend to contact HMRC, they must pay in full by 31 March to avoid interest and collection action. 

Businesses need to sign up for the scheme themselves, agents cannot do this on their clients’ behalf.   All VAT returns must have been submitted and any errors on the returns within the deferral period notified, before applying for the new scheme. 

Menzies’ VAT team will be able to provide guidance on how to apply.   If you would like any assistance please contact Sarah Barron as below. 

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