VAT deferral due to covid


Written by Ray Coman


VAT deferral due to covidIn March 2020, the government announced a series of tax and cash saving measures in an attempt to soften the economic blow of covid.  This included a provision that payment of VAT usually due between 20 March 2020 and 30 June 2020 could be deferred until 31 December.  The deadline was subsequently extended to 31 March 2021.


Recap on opt deferral procedure


Many traders chose to pay VAT by direct debit, for its convenience and the comfort of knowing that a VAT payment will not be late.  A Vat deferral did not need to be applied for.  The deferral worked by the trader not paying VAT usually due during the deferral period. For those with a direct debit set up, it would therefore have been necessary to cancel the direct debit.  To ensure that any payments from July 2020 were collected the direct debit had to be reinstated.


HMRC systems were updated such that deferred VAT was not collected when the direct debit was subsequently set up again.  It would be imprudent to suppose that deferred VAT will be collected by direct debit in March 2021.  We therefore advise a payment is made before the deadline.  If there is no VAT to pay by the direct debit collection date, then nothing will be withdrawn by HMRC.


Further deferral


The Winter Economy Plan provided a further extension beyond 31 March 2021.  Traders who opt in, can settle deferred VAT in equal instalments.  No interest or late payment penalty will be charged for those who have opted in to the deferral program.  The trader can choose between 2 and 11 instalments.  The first instalment will be due 31 March 2021 and the final instalment has to be made by 31 March 2022.


To be eligible, the business must be up to date with VAT Returns and VAT payments, except for that normally due between 20 March and 30 June 2020.


It is a requirement to opt in before 31 March 2021 but the system has not yet been made available.  The VAT deferral payment scheme is due to be launched in 2021.


HMRC have stated to traders that if they can pay the deferred VAT that they should pay this by 31 March 2021.  The instalment arrangement is designed for businesses facing cash flow shortages resulting from lockdown.

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