Paying VAT deferred due to Coronavirus – ‘Opting’ to Pay in Instalments

HM Revenue & Customs (HMRC) has announced that businesses will need to ‘opt in’ to take advantage of paying deferred VAT in instalments.

Businesses can ‘opt in’ between 23 February and 21 June 2021 but the later a business ‘opts’, the fewer instalments will be available to it.

A business will, therefore, need to balance the best way for it to spread their payment of the deferred VAT.

HMRC has also confirmed that the ‘option’ will need to be made by the business rather than an agent, for example, their accountant.

Background

As part of the Government’s attempts to combat the economic impact of Coronavirus, UK businesses were able to defer the VAT payments they were due to make between 20 March 2020 and 30 June 2020.

Initially, the plan was that these businesses would need to pay the full amount back to HMRC by 31 March 2021.

However, as part of the Chancellor Rishi Sunak’s Winter Economy Plan, it was announced that businesses could pay the VAT due in a number of smaller payments over a longer period.

Instead of paying the full amount to HMRC, businesses can ‘opt in’ to the scheme on an interest-free basis, with payments made by the end of March 2022.

Businesses have the option to pay up to 11 instalments if they ‘opt into’ the scheme, with fewer instalments available for businesses the later they ‘opt’.

What businesses will need to do to pay in instalments

To pay in instalments a business will need to:

  • Still have deferred VAT to pay (i.e. not have paid the deferred VAT already);
  • Be up to date with their VAT returns;
  • ‘Opt in’ by 21 June 2021;
  • Pay the first instalment when they join; and

If a business ‘opts into’ the scheme, it can still have a Time to Pay arrangement for other HMRC debts or outstanding tax.

To ‘opt in’, businesses will need to create a Government Gateway account, if they do not hold one already.

Alongside this, they will need to undertake the following prior to opting in:

  • Submit any outstanding VAT returns for the past four years.
  • Make sure they know how much is owed, including the deferred amount and any amounts paid since the initial deferral.

It is recommended that businesses:

  • Pay what they can, as soon as possible, to allow HMRC to show the correct deferred VAT balance.
  • Consider the number of equal instalments they will need, the later a business ‘opts in’ and makes the first payment, the fewer instalments are available.

If a business can’t ‘opt in’ online, for example, if a business does not have a UK bank account, cannot pay by Direct Debit or has dual signatories on the account it is recommended that the Covid-19 helpline is contacted on 0800 024 1222 to help a business join the scheme.

Click here to join the scheme today

What businesses will need to do in respect of errors

If a business notices an error on a VAT return relating to a period covered by the scheme, it should fill in form VAT 652, available here and send it to HMRC’s VAT Error Correction Team. The details are available here.

Businesses can request to defer extra payments resulting from error corrections by contacting HMRC’s COVID-19 helpline here once HMRC has processed the error correction and the business has received a Statement of Account confirming the balance.

Please note, a business cannot include extra payments in the deferred balance after it has opted in.

Error corrections relating to the deferral period notified to HMRC after 31 March 2021 cannot be deferred. If additional VAT is due as a result of a compliance check, a business should contact the COVID-19 helpline should they wish to defer this payment.

If a business does not want to ‘opt into’ the scheme, it can still pay the deferred VAT in full on or before 31 March 2021, or contact HMRC if more extensive assistance will be required in respect of Time to Pay.

If a business decides to make payment instead of using the scheme, different ways to pay are available, which can be found here.

Julian Borley, VAT Director at Milsted Langdon, said: “Businesses will need to ensure that they are ready to ‘opt in’ to spread the cost of deferred payments. Please remember, it is a business’s responsibility to take action and an agent cannot carry this out on their behalf”.

For any queries regarding using this scheme should contact Julian Borley, Director of VAT for advice by emailing vat@milstedlangdon.co.uk

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