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New VAT deferral scheme

Posted on 28/01/2021

If you deferred the VAT payment for your VAT return falling between 20 March and 30 June you will need to make payment to HMRC by 21 June 2021. Given the current circumstances, you might have concerns about making the payment, as many businesses are still facing incredibly challenging times.

We’re here to help you consider the cash flow implications of making the VAT payment on your business.

The good news is you have three options:

  1. Make payment of the full VAT amount on or before 21 June 2021
  2. Opt-in to the HMRC VAT deferral payment scheme  – the online service is open between 23 February and 21 June 2021.
  3. Contact HMRC if you still need more help and time to pay.

VAT deferral scheme

The VAT deferral scheme allows you to make 11 smaller monthly installments instead of making the full payment by 21 June 2021.

To be eligible you must meet the following criteria:

  • still have deferred VAT to pay
  • be up to date with your VAT returns
  • opt in before 21 June 2021
  • pay the first installment when you opt in

If you are eligible and would like to participate in the VAT deferral scheme, you will need to opt in yourself, as your agent is not permitted to do this on your behalf.

To opt in (by 21 June 2021) you will need to:

  • have a Government gateway account – check that you can log in and access your account
  • ensure your VAT return submissions are up to date
  • correct errors on your VAT return as soon as possible
  • make sure you know how much you owe, including the amount you originally deferred and how much you may have already paid
  • pay what you can as soon as possible, to allow HMRC to show the correct deferred VAT balance
  • consider the number of equal installments you’ll need, from 2 to 11 months

The implications of not making payments or paying late are that you will be charged interest and may receive a penalty. If you cannot pay you should contact HMRC as soon as possible to potentially avoid penalties.

Cash-flow considerations

Before you make a decision to make full payment or opt in to make monthly installments, you will need to consider the cash flow needs of your business. If you choose to opt into the VAT deferral scheme, you are going to need to decide how many months you wish to spread the payment over, between 2 and 11. If you choose too few installments, you may find that you will struggle to pay, while meeting your other liabilities. Too many installments could unnecessarily lengthen the liability to the company.

If you have any concerns about how you are going to meet your VAT liability, please get in touch with us as soon as possible. We can produce a cash flow forecast for you showing the impact of various options you may be considering, to aid your decision making.

Please call your usual partner contact or Charles Green on 020 8652 2450 to discuss your circumstances.