Instalment payment plan for VAT deferred under Covid-19 scheme
23 February 2021
On 23 February 2021, the Government opens its long-promised instalment payment plan for VAT payments originally due for March to June 2020. Businesses that have not already paid their VAT for the deferral period can either pay in a lump sum by 31 March 2021 or opt into the instalment plan and pay over an eleven month period between March 2021 and January 2022.
The good news is that businesses that opt in to the plan and make all their instalment payments on time will not be charged interest (or penalties) for late payment of the VAT – effectively extending the original interest-free loan from the Government under the deferral scheme.
Businesses must opt into the instalment plan to participate and will be able to do so until 21 June 2021. Clearly, as the instalment payments start from 19 March, the sooner that a business opts in the smaller each instalment payment will be: ie spread over 11 months if you opt in immediately but only 8 months if you don’t opt in until June.
Although HMRC is insisting that businesses can only join this instalment plan if all their VAT returns are up to date, the fact that the business has already signed up for a time-to-pay agreement in respect of VAT or other taxes will not bar it from joining. However, HMRC does require that any errors in the business’s VAT returns for February, March, April and May 2020 are corrected before joining.
The instalment payments must be made by direct debit from a UK bank account and businesses must make the first payment when they sign up to the instalment plan. Businesses that do not have a UK bank account or cannot pay by direct debit will need to call HMRC s COVID-19 helpline 0800 024 1222 between 23 February and 21 June to join the instalment plan.
As with other online services from HMRC put together during the pandemic, businesses cannot delegate the opt-in activity to their tax advisers and businesses will need a Government Gateway account to register for instalments. In addition, businesses that already use the VAT payment on account or VAT annual accounting systems will not be able to sign-up on 23 February (they will be invited to opt in by HMRC in March when its systems have been updated to support their circumstances): the final date by which all users of the instalment plan must pay their deferred VAT is 31 March 2022. You can opt in via the Government gateway here.
With the UK economy largely still in lockdown, some businesses may have difficulties making the initial payments under the scheme and the idea of waiting until the summer when trade may have picked up could be attractive. However, the cost of missing the 21 June opt in deadline could be high. As always, businesses in financial difficulties should consider all their options for paying all their tax arrears with help from specialists. Read more.