VAT Deferral Scheme: Choices and Penalties

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Written by: Liez Comendador
VAT Deferral Scheme

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Keeping in view the COVID-19 pandemic atrocities and cash-flow pressure off the businesses, the UK government announced to defer VAT payments. To support the business through the prevalent times, around £33.5bn of VAT payments were deferred between March 20, 2020, and June 30, 2020.

Businesses were initially given till last March 31, 2021, to pay the amassed liabilities as they were not asked to pay (deferred VAT) through hard times. Seeing the worsening conditions of businesses, the government showed leniency and introduced an improvised scheme by extending the date of registration to June 21, 2021, along with an installment plan. The HMRC Chief Executive said;

Businesses that deferred paying their VAT last spring have until June 21 to join the VAT Deferral New Payment Scheme online. They should act now to avoid missing out on this opportunity to spread the payment of their deferred VAT across monthly, interest-free installments.”

Your choices for repayment? 

 
When it comes to repayments on the deferred VAT, you can avail one from the following options:

  • Sign up for the new scheme (the last date to apply is June 21, 2021)
  • Pay the deferred amount in full
  • Ask HMRC for an extension ( ask by June 30, 2021)

How does the new scheme work?

 
The new payment scheme permits businesses to take care of their deferred VAT in regularly scheduled payments, free of interest. Business owners must pay their deferred amount by the end of March 2022. If you have not registered for the scheme, then you have only one installment plan of eight months.

In order to get benefits from the new payment scheme, applications were opened in February 2021 and will close on June 21, 2021. If you are planning to join the scheme, then you should have the following;

  • Up-to-date VAT returns
  • Direct debit payment setup
From April 30, 2021, HMRC data shows 228,850 businesses that deferred their VAT a year ago have paid their VAT completely, which amounts to £15.1 billion. Since the online service opened on February 23, 2021, about 134,627 businesses are committed to paying future installments of £11.5 billion.

What are the possible penalties?

 
According to clause 99 and schedule, 19 of the Finance Bill 2021 penalty of five percent of the deferred VAT outstanding is set if the business has not registered for the new payment scheme, paid full, or made an elective plan to pay by June 30, 2021.

The default overcharge rules for late-paid VAT don’t matter to deferred balances.”

Regardless of the conditions of the first deferral scheme, payment must be made in full by March 31, 2021, and the business owners have to pay the deferred balance until June 30, 2021. And if they are having difficulties in paying on time, they should better get help from HMRC.

UK government helped you get through the pandemic, and now it’s up to you to pay back. If you have concerns regarding the VAT deferral scheme, you can ask us to help you understand more regarding the new scheme.

References

 

How can I spread my deferred VAT payments? (2021, June 3). Retrieved from TheTimes.co.uk: https://www.thetimes.co.uk/article/how-can-i-spread-my-deferred-vat-payments-9qtm9jtzq

Press Release: One month left to join VAT Deferral New Payment Scheme. (2021, May 20). Retrieved from Gov.Uk: https://www.gov.uk/government/news/one-month-left-to-join-vat-deferral-new-payment-scheme

UK Tax Quarterly Update – May 2021. (2021, May 24). Retrieved from gibsondunn.com: https://www.gibsondunn.com/uk-tax-quarterly-update-may-2021/

VAT Deferral – Coronavirus. (n.d.). Retrieved from Britishchambers.org.uk: https://www.britishchambers.org.uk/media/get/VAT%20Deferral%20re%20Covid-19.pdf

VAT payment deferrals for business – how does it work and how do I take advantage of it? (2020, April 15). Retrieved from Closebrothers.com: https://www.closebrothers.com/vat-payment-deferrals-business-how-does-it-work-and-how-do-i-take-advantage-it

When to pay VAT which was deferred due to COVID-19. (2021, April 03). Retrieved from crowe.com: https://www.crowe.com/uk/insights/vat-deferral-payment

Author

  • Fahad Lateef

    Fahad is a Chartered Certified Accountant (ACCA), proficient in numeracy and impassioned with giving concise advice to a wide range of clients related to different industries. With an immense experience of over a decade, he has worked as an advisor on different projects run by audit giants like Deloitte and others. He is a firm believer in mutual growth and an established culture of embracing change.

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