All VAT registered businesses had their VAT payments deferred automatically for amounts due to be paid in the period from 20 March to 30 June 2020. No interest or penalties have been charged on that outstanding VAT debt, and businesses have been free to pay the amount due at any time.
Now pay up
There was always going to be a day of reckoning, as HMRC had indicated that businesses would be required to pay the VAT debt in full by 31 March 2021.
However, businesses now have the chance to defer at least some of the VAT debt until January 2022, although any unpaid VAT will accrue interest at 2.6% from 1 April 2021. Where funds are not available the business must contact HMRC to arrange a payment plan to spread the payment of the debt over up to 11 instalments ending in January 2022.
If they don’t join this scheme to formerly defer the remaining VAT debt, HMRC will impose penalties for late payment, and possibly initiate debt collection action against the business.
To smooth the procedure of agreeing a payment arrangement, HMRC is introducing an automated process accessed through an online portal. This will open on 23 February and remain open until 21 June 2021, but tax agents cannot use this system on behalf of their clients. The company director or business owner must access this portal themselves.
This is because as part of the payment plan the business must set up a direct debit to make regular payments from their business bank account. Tax agents don’t have the authority to make payments out of clients’ bank accounts, so can’t enter the agreement on behalf of clients.
The good news is HMRC will allow businesses to arrange a payment plan for the deferred VAT even if they have already entered a time to pay arrangement for other taxes.
Before a business can use this new VAT deferral scheme it needs to get all its VAT ducks in a row as follows:
- submit all its outstanding VAT returns for the last four years
- correct any errors on past VAT returns
- know how much VAT was deferred
- know how much of that deferred VAT debt is still outstanding
- have enough cash ready to pay the first instalment of the VAT due immediately.
The business owner must have the authority to set up a direct debit to pay the remainder of the debt by monthly payments. If the business doesn’t have the cash to even pay the first instalment of VAT, the owner should contact the HMRC payment support service on 0300 200 3835.
The Government wants all of the deferred VAT paid by 31 January 2022, so the later the business signs up to this scheme to spread the payments, the fewer instalments will be available to it.
For example, if the business joins the scheme by 19 March it can spread the payments over 11 instalments starting in March 2021, but if it joins the scheme in June 2021 it can only spread the debt over eight instalments.
If the business owner can’t use the online portal, they should call HMRC on 0800 024 1222 to arrange a payment plan, and this telephone service will be open until 30 June 2021.