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Deadline looms for payment of deferred VAT

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Published: 26 May 2021 Update History

The deadline for paying VAT deferred due to the impact of coronavirus is the end of June. ICAEW’s Tax Faculty explains the options available to businesses to avoid a 5% penalty.

One of the first tax easements for businesses affected by the coronavirus pandemic was the ability to defer VAT payments due between 20 March 2020 to 30 June 2020. The VAT was originally deferred until 31 March 2021, but a further deferral was announced in September 2020 giving businesses until 30 June 2021 to repay the VAT or arrange to pay in instalments.

If arrangements are not made by this date, businesses incur a penalty of 5% and/or interest, chargeable in relation to the amount of the deferred VAT that remains outstanding.

The options available to businesses to avoid the 5% penalty are:

  • pay the deferred VAT in full by 30 June 2021;
  • opt into the VAT deferral new payment scheme (online by 21 June 2021); or
  • make alternative arrangements to pay HMRC by 30 June 2021.

Paying the deferred VAT in full

HMRC has confirmed that it will not charge penalties or interest where a business pays its deferred VAT in full by 30 June 2021.

The VAT deferral new payment scheme

Business wanting to join the VAT deferral new payment scheme have until 21 June, when the online portal for applications will close.

Businesses unable to use the online facility can call HMRC’s Coronavirus Helpline on 0800 024 1222 to join the scheme until 30 June 2021.

Businesses joining the scheme by 30 June deadline will not be charged a penalty and will be able to pay their deferred VAT in two to eight interest-free instalments. The first instalment is payable upon joining the scheme.

There are various pre-requisites for joining the scheme including being up to date with filing VAT returns and agreeing to pay the instalments by direct debit.

Agreeing time to pay

Where businesses do not have the resources for the above two options, contacting HMRC by 30 June 2021 to agree a time to pay arrangement will avoid the 5% penalty. However, the key difference is that the VAT repayments will not be interest free.

Similar to the VAT deferral new payment scheme, businesses will need to be up to date with filing their returns and expect to make monthly payments by direct debit.

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