COVID-19: VAT deferred payments

• VAT registered businesses were not required to make VAT payments that were due from 20 March 2020 to 30 June 2020.
  • This relief was automatic: it did not need to be claimed.
• The VAT liability and payment were not cancelled, they were deferred.
• VAT refunds and reclaims were not affected.
• This deferral measure applied to VAT payments due for the VAT quarters:
  • 29 February 2020: normal payment deadline 7 April.
  • 31 March 2020: normal payment deadline 7 May.
  • 30 April 2020: normal payment deadline 7 June.
• Where VAT was paid by direct debit it was necessary for businesses to cancel the direct debit with their bank, if they wished to defer payment.
  • HMRC confirmed that a refund could be claimed where a business failed to cancel their direct debit in time and that the quickest way to do this was to submit a direct debit indemnity claim to their bank. Alternatively, a refund could be claimed from HMRC but this may take longer. Source: ICAEW
• Businesses must remember to reinstate their direct debits in time for their first payment due date after 30 June 2020. See Reminder: Reinstate your direct debits for VAT
• Any deferred VAT liability needed to be settled by 31 March 2021 unless the payment scheme was used.
  • Under the payment scheme, the balance could be paid by up to eleven interest-free instalments by the end of March 2022. See Overview tab. 
• Penalties will be charged where the payment scheme has not been joined or alternative arrangements made to pay the deferred VAT by 30 June 2021. 

Paying deferred VAT

On 24 September 2020, Chancellor Rishi Sunak announced a package of new measures to support the economy during the Coronavirus pandemic including additional time to pay deferred taxes. 

• Businesses that deferred VAT payments which were due between 20 March 2020 and 30 June 2020 to 31 March 2021 were able to elect to pay these in up to eleven interest-free instalments via the VAT deferral payment scheme.
  • This was an opt-in scheme, legislated for in Finance Act 2021.
  • All instalments must be paid by the end of March 2022.
  • Businesses could select the number of instalments from two to 11 equal monthly payments if they joined by 19 March 2021. Businesses who joined by:
    • 21 April 2021 were able to have up to 10 instalments. 
    • 19 May 2021 were able to have up to nine instalments.
    • 21 June 2021 were able to have up to eight instalments.
• To have used the scheme, businesses must have:
  • Had deferred VAT to pay.
  • Been up-to-date with their VAT returns.
  • Opted-in: the payment scheme opened on 23 February 2021 and closed on 21 June 2021.
  • Paid the first instalment when they opted-in. 
• If businesses opted into the scheme, they could still have a Time to Pay arrangement for other HMRC debts and outstanding tax.
• In preparation to use the payment scheme, businesses should have: 
  • Ensured they had a government gateway account. 
  • Submitted any outstanding VAT returns from the last four years. It was not possible to join the scheme if they have not done so.
  • Corrected errors on VAT returns as soon as possible. Corrections received after 31 December 2020 may not show in the deferred VAT balance.
  • Made sure they know how much they owe, including the amount originally deferred and how much already paid (if any).
• Agents could not join the scheme on behalf of clients. 

Penalties

• A penalty of 5% of the unpaid deferred VAT will be charged if businesses have not paid the deferred VAT due or made an alternative arrangement to pay by 30 June 2021.
  • The normal Default Surcharge will not apply to deferred VAT.
  • Alternative arrangements to pay included joining the VAT deferral payment scheme or contacting HMRC to agree extra help to pay. 
• Penalties must be paid within 30 days of being assessed. 
• A penalty can be appealed if the taxpayer has a Reasonable excuse. 

VAT errors in deferred period

• Where VAT errors are identified on a VAT return that relates to a period covered by the deferral, form VAT 652 should be completed and sent to the VAT error team. 
• The balance could then be paid by 31 March 2021 or included in the subsequent deferral payment scheme, where the taxpayer opted in. 
• The error correction payment(s) could, prior to 31 March 2021, be included in the deferred balance by contacting HMRC's COVID-19 helpline after: 
  • HMRC have processed the error correction.
  • A revised statement of account has been received. 
• It is not now possible to include any extra payments in the deferred VAT balance: amounts should be paid as soon as possible as interest will be charged. 

Useful guides on this topic

COVID-19: Government support tracker
This tracker covers measures announced by the government to support individuals and businesses, as we get through COVID-19.

Time to Pay agreement
Business and self-employed taxpayers with outstanding tax liabilities may be eligible to receive support with their tax affairs through HMRC’s Time To Pay service.

Correcting VAT errors
What are the time limits? Can you do it through the VAT return? Do you have to notify HMRC?