HMRC unveils penalty regime for VAT deferral scheme

Companies that used the VAT deferral scheme have been warned they face a five per cent penalty if they do not make payment arrangements by 30 June this year.

Over half a million businesses deferred VAT payments last year. HM Revenue & Customs (HMRC) has confirmed that companies will be liable for a penalty or interest if they do not pay in full or make an arrangement to pay the deferred VAT by that date.

At the start of the COVID-19 pandemic, the Government announced a three-month deferral of VAT payments for the first tax quarter of 2020, and payments for this outstanding VAT are now due.

Companies that deferred VAT payments due between 20 March 2020 and 30 June 2020 can either pay the deferred VAT in full, join the VAT Deferral New Payment Scheme or make other arrangements with HMRC if they need extra help to pay by 30 June 2021. The New Payment Scheme opened on 23 February 2021 and is available until 21 June 2021.

The VAT Deferral Payment Scheme allows taxpayers to schedule payments. The scheme lets you pay your deferred VAT in equal instalments, interest-free and choose the number of instalments by direct debit, from two to 11 (depending on when you join).

For example, if you joined by 21 June 2021, you will make eight instalments.

You cannot include extra payments after you’ve joined the scheme.

To take part, HMRC says you must:

  • 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 for you)

The new payment scheme is part of a wider Government package of support, now worth more than £400 billion, which is helping to protect millions of jobs and businesses during the pandemic.

The new payment scheme will continue to help the economy recover by enabling businesses, impacted by the pandemic, to manage their cash flow at a critical time.

Eligible businesses that are unable to use the online service can ring the HMRC Coronavirus Helpline on 0800 024 1222 to join the scheme or make alternative arrangements to pay until 30 June 2021.

If you need assistance with the VAT deferral payment scheme, please contact us before the June deadline.

Posted in News.