Due to the massive disruption suffered by all UK businesses through the months of March and June 2020 thanks to the pandemic, the government announced in March that they would defer the payments of VAT for these months, and instead would allow businesses to wait until March 2021 to pay their outstanding VAT. However, more recently the government have extended this period even further to March 2022 and are now allowing affected businesses to make use of the VAT Payment Deferral Scheme, which allows businesses who have opted-in to the scheme to make their payments in instalments over 11 months (beginning from March 2021). But how does this scheme work? Also, are you eligible to opt-in to use it? Continue reading to find out.
How Does The Scheme Work?
For those who are able to pay their VAT for the months of March to June 2020 in full on or before the 31st March 2021, the HMRC are advising they do so. Should you require longer to pay your VAT back though, the scheme essentially allows you to spread the cost of the outstanding VAT over 11 months. The instalments will be interest free, and you can choose how many months you want to pay it over (between 2 and 11 months).
The HMRC have pointed out that the following does not qualify for deferral: Payments of import VAT, Customs Duties or other taxes (such as Insurance Premium Tax, Machine Games Duty etc.) unless covered by another Government announcement; VAT due to be paid in relation to disclosures and assessments due to HMRC; and Time To Pay (TTP) arrangements for payments due before 20 March 2020.
How To Apply
To benefit from the scheme you must opt-in before March 31st 2021. It is worth knowing that you have to do this yourself, and cannot delegate the task to an agent. The application process will open in early 2021, so it is worth making sure you can meet all the criteria before then. According to the HMRC, to use the scheme you must:
- still have deferred VAT to pay
- be up to date with your VAT returns
- opt in before the end of March 2021
- pay the first instalment before the end of March 2021
- be able to pay the deferred VAT by Direct Debit
Should you fit the above criteria, there are a few things that the HMRC have communicated that you must do.
- Create your own government gateway account if you don’t already have one
- submit any outstanding VAT returns from the last 4 years. You will not be able to join the scheme if you have not done so
- correct errors on your VAT returns as soon as possible. Corrections received after 31st December 2020 may not show in your deferred VAT balance
- make sure you know how much you owe, including the amount you originally deferred and how much you may have already paid
The HMRC are also advising that you pay what you can as soon as possible to allow them to show the correct deferred VAT balance, and thus it’ll be easier for you to consider the number of equal instalments you’ll need (again, from 2 to 11 months).
Conclusion
This scheme will certainly help businesses who were negatively affected by the first lockdown. According to the Chancellor Rishi Sunak, nearly half a million businesses deferred over £30bn of VAT this year. If, even with the scheme, you are unable to pay your VAT, you must contact the HMRC and they have said they will help the best they can.
Here at J & P Accountants, we understand that the prospect of trying to comply with all those tax regulations can be daunting.
If you are a business who participates in cross border e-commerce, we would be more than happy to help you register for VAT, file your VAT returns, and help you comply with VAT in case your account faces any issues. At J&P, helping your business is our passion, and we understand that companies across the UK are at risk now more than ever. We are here to support you through the Coronavirus crisis and Brexit, so please do not hesitate to give us a call on 0161 637 1080 or send an e-mail to enquiries@jpaccountant.com.
