VAT Deferral – planning how to pay

As UK businesses began to feel the financial impact of the COVID-19  pandemic, many chose to take the option offered by the UK government and defer their VAT payments. Now, as those businesses return to work, their VAT payments are falling due.

We spoke to Neil Gaskell, tax manager at ICAEW, to discuss the settlement process for making VAT payments that were deferred between 20^th March and 30^th June 2020.

“Essentially the VAT deferral is a cash flow benefit. In very simple terms, it works like a payment holiday. Businesses need to ensure that they proactively seek to pay the VAT they deferred before 31^st March 2021. Simply reinstating the direct debit won’t pay back the deferred VAT.”

For more information, see the ICAEW article on Coronavirus Q&A: deferral of VAT payments

Paying your deferred VAT bill

While HMRC will not charge interest or penalties on any amount you deferred as a result of the pandemic, you can pay or make payments towards your deferred VAT now or at any time up to 31^st March 2021.

However, you must take proactive steps to pay your deferred VAT – it isn’t enough to simply reinstate your direct debit.

you opted to defer your VAT payments, you can now make them in full via any of the following methods:

• Online banking
• Telephone banking
• BACS or CHAPS
• By debit card or corporate credit card
• At your bank or building society

Paying by standing order

You can set up a standing order with your bank to pay your deferred VAT in instalments. But be aware that:

• your standing order for the deferred VAT payment will run alongside your current VAT payment, meaning you’ll make two payments
• standing orders take three working days to reach the HMRC bank account.

To continue to pay current VAT (VAT arising from 30)

• reinstate cancelled direct debits in enough time for HMRC to take payment
• set up a new direct debit
• continue to submit VAT returns as normal, and on time
• pay the VAT in full on payments due after 30^th June

Setting up a new direct debit

If you took advantage of the option to defer VAT payments, you must now set up a new direct debit with HMRC in time for the first payment, which is due after 30^th June 2020.

All payments due after 30^th June 2020 must be paid in full. Now normal practice has resumed, you must continue to file your VAT returns on time.