VAT: Deferral of payments

Newsletter issue - May 2020.

Temporary changes have been made to the rules governing VAT payments due between 20 March 2020 and 30 June 2020 to help businesses manage their cash flow during the coronavirus (COVID-19) pandemic.

Under the temporary easement, a UK VAT registered business with a VAT payment due between 20 March 2020 and 30 June 2020 has two options:

defer the payment until a later date; or
pay the VAT due as normal.

This relaxation of the rules does not cover VAT Mini one stop shop (VAT MOSS) payments (broadly, a scheme designed for payment of VAT on supplies of certain digital service).

It is not necessary to tell HMRC that the business is deferring its VAT payment.

Importantly, HMRC will not charge interest or penalties on any amount deferred as a result of the Chancellor's announcement.

HMRC will continue to process VAT reclaims and refunds as normal during this time.

Businesses opting to defer payment must pay the VAT due on or before 31 March 2021. This is the date for those that pay VAT monthly.

The position is more complex for most VAT-registered businesses that are on quarterly instalments. HMRC have yet to confirm their position, but the likely payments dates, depending on return due dates, are likely to be 31 March 2021; 30 April 2021; or 31 May 2021.

HMRC are advising businesses that usually pay by direct debit to cancel the debit mandate as soon as possible.

It is entirely possible that there will be an extension in July to the current VAT deferment. Businesses paying by direct debit will need to review this before reinstating their payments.

Businesses must continue to submit their VAT returns to HMRC on time.

The normal due date for sending a VAT return and any required VAT payment is normally the last day of the month following the end of the VAT return period. However, persons who electronically pay the VAT due on their returns automatically receive a seven-calendar-day extension for the submission of the return and the payment. This can be taken on a return-by-return basis.

Businesses using the payment-on-account scheme for large traders and those using the annual accounting scheme are not entitled to the additional seven day extension.