The VAT Deferral Payment Scheme – All You Need To Know

The VAT Deferral Payment Scheme was announced by HMRC on the 23rd February 2021. Rather than the traditional form for a business to pay their annual VAT bill in one large sum, it is now possible for businesses to pay in equal monthly instalments through the online VAT Deferral New Payment Scheme.

Businesses will need to opt-in to the VAT Deferral New Payment Scheme, which can be done via the online service that opens on 23 February 2021 and closes on 21 June 2021. Rather than paying the full amount by the end of March 2021, up to 11 equal monthly instalments can be made, which are also interest free. All instalments must be paid by the end of January 2022.

Businesses also have the option choose the number of instalments, from 2 to 11, depending on what point they join the scheme. The VAT deferral period covers the accounting periods for February 2020, March 2020, April 2020 and May 2020 (for payment on account customers and certain non-standard tax periods only, in addition to the above periods).

What Is The VAT Deferral Scheme?

The VAT Deferral Scheme enables businesses to spread the costs of their VAT bills across a certain set of time, dependent on when you sign up. In order to sign up to the Deferral Scheme, you must:

  • create your own Government Gateway account (if you do not already have one)
  • submit any outstanding VAT returns from the last 4 years
  • correct any errors on your VAT returns as soon as possible
  • make sure you know how much you owe, including the amount you originally deferred and how much you may have already paid
  • join the scheme yourself, your agent cannot do this for you
  • still have deferred VAT to pay
  • be up to date with your VAT returns
  • join by 21 June 2021
  • pay the first instalment when you join
  • pay your instalments by Direct Debit (if you want to use the scheme but cannot pay by Direct Debit, there’s an alternative entry route)

You may be ineligible for the scheme if you:

  • do not have a UK bank account
  • cannot pay by Direct Debit
  • have dual signatories on your account

You may also be charged interest or a penalty if you do not:

  • pay the deferred VAT in full by 31 March 2021
  • opt into the new payment scheme by 21 June 2021
  • agree extra help to pay with HMRC by 30 June 2021

Announced by the Chancellor of the Exchequer in the 2021 UK Budget, ‘a penalty totalling 5% of any VAT still outstanding for payment at 31 March 2021 will be charged if that organisation had not opted into the new payment scheme or made an alternative arrangement to pay by 30 June 2021. This penalty will apply instead of the normal default surcharge regime.’

Businesses will need to make sure they have conducted a plan on how to manage the VAT that was deferred. An application has to be made to access the new payment scheme, therefore doing nothing will result in a 5% penalty charge. 

Who Will The VAT Deferral Scheme Affect? 

The VAT Deferral Scheme will affect any business with a UK VAT registration who have yet to pay their full VAT bill for 20th March 2020 to 30th June 2020. It’s estimated that the scheme will help out over half a million businesses during the unprecedented economic climate as a result of the COVID-19 lockdown period. As well as the cuts to the VAT rate for the hospitality and tourism sector, the VAT deferment schedule will in total defer up to £30bn worth of payments from businesses.

Businesses who choose to enter the deferral scheme, will not need to inform HMRC and simply will just need to cancel the payment. If a business normally pays by direct debit, then it will mean the bank will need be notified or the direct debit through online banking will need to be cancelled. It’s advised this should be done as early as possible before the payments are due to be taken so HMRC does not attempt to automatically collect the payment.

Why Are The Government introducing The VAT Deferment Scheme?

The VAT deferral scheme was announced along with a set of other packages, worth more than £280 billion in total, to help businesses whilst protecting millions of jobs. The new payment scheme will continue to help the economy recover by enabling businesses, impacted by the pandemic, to manage their business cash flow at a critical time.

Jesse Norman, Financial Secretary to the Treasury, stated, “The government has provided a package of support worth over £280 billion during the pandemic to help protect millions of jobs and businesses. This now includes the VAT Deferral New Payment Scheme, which will help provide businesses with the breathing space they may need to manage their cashflows in the weeks and months ahead.”

How Can I Apply For The VAT Deferral Scheme?

The application process for the VAT Deferral Scheme is now open until 21st June 2021. You can sign up for the VAT Deferral Scheme via the dedicated Government online portal here.

We hope this has outlined to you exactly what the VAT Deferral scheme is and whether your business will be affected. If you require any more information on any government COVID-19 loans and grants, or anything accounting related for that matter, please don’t hesitate to get in contact with us at Nordens where one of our trusted advisors would be happy talking you through your query.