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VAT payment deferrals and COVID-19

VAT payment deferrals and COVID-19

On Friday 20 March the Chancellor announced that in a further bid to support businesses during the COVID-19 pandemic, the Government will allow businesses to defer from paying their VAT for 3 months.

What does this mean for your business or your clients?
We have put together the following Q&A's to provide some of the practical detail.

Do I still have to pay VAT to HMRC?
Not if you don’t want to or cannot. HMRC is deferring VAT payments for 3 months.

Businesses who wish to take up HMRC’s offer to defer their VAT payment due between 20 March and 30 June 2020 and normally pay their VAT by direct debit (DD) are advised to cancel their DD with their bank.  Otherwise HMRC may automatically attempt to collect the payment on receipt of the VAT Return and it will take a period to seek a repayment.

When the DD is cancelled it is likely businesses will receive a message from HMRC confirming the cancellation and advising them to ensure they have an alternative method of making payment. This is a standard message and can be disregarded at this time.  DD’s can be re-instated later; however, future VAT Return payments can be paid by bank transfer. We would advise you not to re-instate your DD and pay by bank transfer for the time being if taking advantage of the deferment. 

It is anticipated that HMRC’s systems will still automatically issue default surcharge and penalty notices (as appropriate depending on the VAT history of the business) but all indications are that these will be waived by HMRC although this has not been explicitly stated at this time.

For the avoidance of doubt, businesses are still required to submit their VAT Returns by the due date, it is only the payment of the VAT liability declared on the Return that can be deferred.

If you wish to defer your VAT payment, you should cancel your Direct Debit mandate.

HMRC have also confirmed that this VAT payment holiday only applies to UK businesses, not overseas businesses with UK VAT registrations, who will have to pay as normal.

Do I still have to file VAT returns?
Yes. The deferral scheme only applies to payment of VAT. You should continue to file VAT returns by your normal due date to avoid late filing penalties.
 
What payments can be deferred?
At the moment HMRC have said that payments due between 20 March 2020 to 30 June 2020 may be deferred.
 
When will I have to pay deferred VAT payments?
You will be given until the end of the 2020-21 tax year (5 April 2021) to pay any liabilities accrued during the deferral period.
 
Will there be interest or penalties if I defer payment?
No.
 
How do I know if I am eligible to defer VAT payments?
All UK businesses are eligible to defer.
 
Do I have to apply for deferral?
No – it applies automatically.

What if I am due a refund or reclaim of VAT?
VAT refunds and reclaims will be paid by HMRC as normal.
 
What if I am able to and want to pay VAT as normal?
You can continue to pay in the normal way.

Please note, these are deferrals not cancellations.

The COVID-19 situation is evolving each day. We will keep you posted of any further notices affecting businesses who file VAT returns, as and when they are announced.