HMRC have updated their guidance to confirm how VAT registered businesses and individuals that took advantage of the VAT deferral period in 2020, and still have a balance, can join the new VAT deferral payment scheme.

When the VAT deferral period was announced in March 2020, the only option available was to pay the deferred VAT by the end of March 2021.

The Government subsequently announced a new option which pushes back the requirement to pay the full balance until the end of March 2022. This new option should provide cash flow benefits and may help with banking covenants.

HMRC’s update provides additional information and explains how clients can join the scheme online. The online service will be open between 23 February 2021 and 21 June 2021. Although, we would recommend that anyone with an outstanding balance should consider whether they wish to use the new scheme at their earliest opportunity.

Below are some additional practical points to consider in respect of VAT payments.

Pay by direct debit

Businesses that pay BACS, CHAPS, etc. should 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 has been no indication that HMRC are taking 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, or discuss a time to pay arrangement with HMRC.

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.

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 to discuss this further.