Paying VAT which has been deferred due to Coronavirus
*This article was updated on 14 April 2021 to include details regarding penalties or interest that may be charged.*
In September 2020, the Chancellor announced his Winter Economy Plan in which he confirmed that deferred VAT due in March 2021, could be repaid in 11 month interest free instalments to help businesses with their cashflow.
Further details have now been published in relation to the payment of VAT which has been deferred due to Coronavirus and how you can pay now or opt in to the payment deferral scheme.
Businesses that deferred VAT between 20 March and 30 June 2020 and still have payments to make, can:
- pay the deferred VAT in full on or before 31 March 2021
- join the VAT deferral new payment scheme - the online service is open between 23 February 2021 and 21 June 2021
- contact HMRC if they need more help to pay.
Businesses may be charged a 5% penalty or interest if they do not pay in full or make an arrangement to pay by 30 June 2021.
Paying deferred VAT
Businesses can pay deferred VAT in full anytime before 31 March 2021. There is no need to contact HMRC. VAT payments can be made here.
If a business was unable to pay in full by 31 March 2021, they may still be able to avoid being charged penalties or interest by either:
- joining the new payment scheme by 21 June 2021
- paying their deferred VAT in full by 30 June 2021.
Opting in to the VAT deferral scheme
Instead of paying the full amount of VAT before 31 March 20201, businesses can take advantage of the new payment scheme. The scheme allows businesses to make up to 11 smaller monthly instalments, interest free. Please note that all instalments must be paid by the end of March 2022.
The scheme will allow businesses to:
- pay deferred VAT in instalments with no interest
- select the number of instalments from 2 to 11 equal monthly payments.
To use the scheme, businesses must:
- still have deferred VAT to pay
- be up to date with their VAT returns
- be able to pay the deferred VAT by Direct Debit.
If opting in to the scheme, businesses can still have a time to pay arrangement for other HMRC debts and outstanding tax.
How to apply
The online opt in process opens on 23 February 2021 and can be accessed here.
Get ready to opt in
Businesses wishing to take advantage of the deferred payment scheme must:
- create a Government Gateway Account (if not already)
- submit any outstanding VAT returns from the last 4 years
- correct any error on VAT returns as soon as possible and preferably before 31 December 2020
- make sure you know how much you owe.
Further information about the scheme can be found here.