HMRC has updated its guidance to flag the steps that need to be taken by businesses which benefited from the 20 March 2020 to 30 June 2020 Coronavirus VAT deferral period. I’ve set out the practical points to consider and actions that may need to be taken in this short blog.

From 1 July 2020

From 1 July 2020 all businesses must submit their VAT returns and payments to HMRC on time. Businesses that opted to defer VAT payments will need to take action to avoid negative consequences, such as incurring financial penalties.

Your direct debit

Businesses that paid their VAT return payments via direct debit, but cancelled the direct debit to benefit from the VAT deferral period, will need to set-up a new direct debit. This should be done as soon as possible, as there is usually a time lag between setting up a direct debit and the recipient being able to collect the payment as intended.

Alternative payment methods

Businesses that pay by an alternative payment method should ensure they make their VAT return payments as normal by any prescribed deadline that arises from 1 July 2020. It would be prudent for such businesses to consider setting up a direct debit. HMRC collect direct debit payments later than the prescribed deadline for other payments, so a cash flow benefit can be achieved.

Beware of the cost of late payments

There is no indication that HMRC will take a lenient approach with default surcharges, the penalties that apply to late VAT return payments. Such penalties can be as high as 15% of the VAT bill. Consequently, it is important that businesses pay on time.

Time to pay arrangements

If a business thinks it will be unable to fully pay a VAT return bill it would be sensible to consider engaging with HMRC as soon as possible to negotiate a time to pay arrangement. This involves agreeing to pay specified amounts to HMRC on a periodic basis by direct debit to clear outstanding liabilities. An up-front payment may also be required by HMRC. The benefit of a time to pay arrangement is HMRC will not pursue debt proceedings while an agreement is in place and complied with. Further, a time to pay arrangement usually prevents default surcharges if the agreement is entered into before a debt arises.

Deferred VAT deadlines

Businesses must repay deferred VAT by 31 March 2021. It would be sensible for businesses to budget and plan for how they will repay deferred VAT to reduce the risk of not being able to repay the full amount by the deadline. HMRC is happy for businesses to make additional payments with future returns to cover the deferred VAT.

The above will not impact on businesses that were in a VAT repayment position. However, businesses that have recently changed from making payments to HMRC to receiving VAT repayments from HMRC as a result of a change to trading patterns should consider requesting HMRC change them from submitting quarterly to monthly VAT returns. This will improve cash flow by expediting VAT repayments and increasing VAT the frequency of refunds.

Get in touch

Please contact your usual Johnston Carmichael VAT contact or a member of our VAT team if you would like to discuss managing your VAT return payments or negotiating time to pay arrangements with HMRC. Alternatively, get in touch with me directly at: Tony.Cochrane@jcca.co.uk to discuss this further.