Delaying VAT payments
- Time to pay
- Action required now the deferral period has ended
- Claiming a refund if the business failed to cancel its direct debit on time
Many businesses have experienced a rapid and unexpected decrease in their revenue streams as a result of the coronavirus outbreak. As a result, they may be suffering severe cash flow problems that will impact their ability to pay any VAT due. In light of these significant ongoing concerns, the Chancellor announced a delay in the requirement to remit VAT payments that applies from 20 March 2020 until 30 June 2020. Businesses are therefore not required to make a VAT payment during this period. Businesses will be given until 31 March 2021 to pay any liabilities that have accumulated during the deferral period.
Businesses can still opt to pay the VAT due if they are not suffering from financial difficulties during this period or do not wish to run up a VAT bill that needs to be paid at a later date.
HMRC will continue to process VAT reclaims and refunds as normal and most repayments are paid within 5 working days. Repayments will not be offset against any deferred VAT, but they will be offset against existing debts. Buisnesses can apply apply online to move to monthly returns to improve its cashflow if it is in a repayment position.
HMRC has confirmed that all UK VAT registered businesses (which includes both UK resident and non-resident businesses) are entitled to delay payment of any VAT due automatically with no requirement to formally apply for the extension.
HMRC has confirmed that businesses who pay via direct debit need to cancel that direct debit if they cannot afford to pay the VAT due. HMRC has requested that businesses cancel the direct debit as soon as possible so HMRC does not attempt to take the payment when it becomes due. Businesses must however ensure that direct debits are set up once the deferral period has ended to make sure no VAT payments are missed.
This measure includes all of the following VAT payments to HMRC, which can be deferred until 31 March 2021:
- payment for quarterly and monthly VAT returns ending February, March and April 2020
- payments on account due between 20 March 2020 and 30 June 2020. See the Payments on account (POA) guidance note for more information
- annual accounting advance payments due between 20 March 2020 and 30 June 2020. See the Overview of the annual accounting scheme guidance note for more information
It is important to note that the deferral relates to VAT that is payable during this period and not to VAT return periods. Businesses will be required to remit all VAT that has been deferred on 31 March 2021 regardless of their VAT return periods.
If a businesses as deferred any payment on account between 20 March 2020 and 30 June 2020 but the balancing payment is outside of these dates, the amount that must be paid is the balancing payment less any deferred payments. Deferring payments will not create a repayment.
The CIOT has produced helpful guidance on what payments are not currently covered by the deferral period (this could be subject to change depending on how long ‘lockdown’ lasts for).
HMRC’s latest guidance states that the deferral arrangements do not include Mini One Stop Shop (MOSS) payments or import VAT. See the Mini One Stop Shop ― returns and record keeping requirements guidance note.
HMRC has also confirmed that this does not cover VAT due in relation to disclosures or assessments.
Interest and penalties will not be charged on any amounts that have been deferred under these arrangements.
It is important to remember that VAT returns must be submitted on time even if the payment is deferred.
All VAT payments due after the deferral period has ended must be paid as normal. Businesses should ensure that they re-initiate any direct debits that had been cancelled in sufficient time for the payment be collected by HMRC. All VAT payments due after 30 June 2020 must be paid on time unless the business has agreed a time to pay arrangement with HMRC (see below). HMRC is encouraging businesses to get in contact if they need help with VAT as a result of coronavirus.
Any VAT payments that have been deferred between 20 March and 30 June should be paid in full on or before 31 March 2021. Additional payments can be made with subsequent returns.
Time to pay
HMRC has also clarified that businesses with time to pay (TTP) arrangements in place before 20 March 2020 cannot defer those payments as well. Businesses that are struggling to make these payments should contact HMRC using the dedicated helpline on 0800 024 1222. For TTP arrangements made for payments due between 20 March 2020 and 30 June 2020 only, businesses benefit from the ability to defer payment until 31 March 2021. Businesses do not need to notify HMRC. Any Direct Debits set up for these arrangements must be cancelled.
HMRC is also delivering an enhanced TTP offer to fit the specific impacts of coronavirus. TTP is available to all businesses that are in temporary financial distress as a result of the coronavirus outbreak and are unable to pay their tax on time or have existing liabilities. HMRC has set up a dedicated helpline to enable those eligible to get practical help and advice, which can be reached by calling 0800 024 1222.
Action required now the deferral period has ended
The deferral period ended on 30 June 2020 and has not been extended.
All VAT payments due after the deferral period ended must be paid as normal. Businesses should ensure that they reinitiate any direct debits that were cancelled in sufficient time for the payment to be collected by HMRC.
All VAT payments due after 30 June 2020 must be paid on time, unless the business has agreed a time to pay arrangement with HMRC (see above). HMRC is encouraging businesses to get in contact if they need help with VAT as a result of coronavirus.
Any VAT payments that were deferred between 20 March and 30 June should be paid in full on or before 31 March 2021. Additional payments can be made with subsequent returns.
Claiming a refund if the business failed to cancel its direct debit on time
HMRC has provided guidance to the ICAEW’s Tax Faculty on what steps can be taken to obtain a refund if the business failed to cancel its direct debit in time and the VAT return payment was collected as a result even though the business intended to defer the VAT. The information published by the ICAEW is provided below:
‘HMRC has confirmed that where taxpayers wanted to defer VAT payments due between 20 March 2020 and 30 June 2020, but did not manage to cancel their direct debit in time, they can claim a refund.
The quickest way for taxpayers to do so, according to HMRC, is to submit a Direct Debit Indemnity Claim to their bank, ensuring that they state they want to claim a refund under the Direct Debit Indemnity Scheme (DDI). HMRC confirms that there is no time limit in making this request.
If the taxpayer wants a repayment from HMRC rather than contacting the bank, they must ensure that their bank details are updated using the online services.
HMRC reminds taxpayers that due to COVID-19 restrictions, Payable Orders are not being issued and that it may take up to 21 days for the refund to be received if the Direct Debit Indemnity Claim process is not used.
The Tax Faculty understands that HMRC will provide further guidance on the payment of the deferred amount at the end of the deferral period. Businesses will also need to make arrangements to pay VAT falling due from 1 July 2020 to 31 March 2021 (ie amounts that are not deferred). The Faculty is awaiting confirmation that reinstating a Direct Debit will not result in the deferred VAT being collected immediately. A change in the way that HMRC collects Direct Debits for those in MTD for VAT makes this a possibility and HMRC needs to ensure that does not happen.’