VAT Deferral

VAT Returns

May 19, 2020

The British Chancellor Mr. Rishi Sunak announced temporary VAT payments deferral measures on 20th March 2020 to support businesses with cash-flow problems during the COVID-19 pandemic. It effectively means that all the UK VAT registered businesses that have a VAT payment due between 20th March 2020 and 30th June 2020 can postpone their payments to HMRC until 31st March 2021. This announcement applies to non-established taxable persons as well. This will benefit around 2 million VAT payers and delay £30 billion in taxes to the UK government since it includes pre-crisis trading.

Let us look at the salient features of this relief measure in detail –

1. All VAT payments to HMRC due between 20th March 2020 and 30th June 2020 can be deferred until 31st March 2021. This includes:

-Payment for quarterly returns ending 29th February and due on 7th April.

-Payment for quarterly returns ending 31th March and due on 7th May.

-Payment for quarterly returns ending 30th April and due on 7th June.

-Payment for monthly returns due in this period.

-Payments on account due in this period.

-Annual Accounting advance payments.

2. Payments such as those related to Import VAT, Custom duties, Machine games duty, Insurance premium tax etc. are not covered under this announcement and hence businesses must pay these taxes/duties as per the prevailing norms. Also, payers on Mini One-Stop-Shop (MOSS) returns are not included in this scheme.

3. This special measure does not apply to VAT due to be paid in relation to disclosures and assessments due to HMRC.

4. This deferral scheme is optional and not binding. The businesses which still want to make VAT payments as usual are free to do so during this period.

5. No penalties, surcharges or interest on payments deferred by this announcement would be charged by HMRC.

6. It is very important to remember that during this period only the VAT payment has been deferred and hence businesses still need to file their VAT returns on time as they do normally.

7. There is no application to be filled nor is there any need to inform HMRC if the businesses wish to postpone payments. They can simply not make any VAT payments due in this period to HMRC.

8. One important point that the businesses need to keep in mind is that they should cancel the Direct Debit mandate with their bank if they use this method to make their payments. If they don’t do this, HMRC will automatically collect the payment, on receipt of their VAT return. Businesses will also need to remember to reinstate their Direct Debit mandate once this period is over.

9. Businesses that choose to defer paying their VAT liabilities during this period should pay it to HMRC on or before 31st March 2021. HMRC will issue further guidance on how to repay the deferred VAT soon.

10. After the end of the deferral period, VAT payments which would become due for the subsequent VAT accounting periods will have to be paid as they were paid earlier.

11. HMRC will continue to process VAT reclaims and refunds as normal during this time and most repayments are paid within 5 working days. However, repayments will not be offset against any deferred VAT, but they will be offset against existing debts.

12. Businesses can apply online to move to monthly returns to improve their cash-flow if they are in a repayment position.

13. Businesses would need to make the payments for Time To Pay arrangements made with HMRC for payments due before 20th March 2020. However, the payments can be deferred for Time To Pay arrangements made for payments due between 20th March 2020 and 30th June 2020 only.

14. Time to pay arrangements are available to all businesses and individuals who are in a temporary financial distress as a result of COVID-19. If you’re struggling to pay your tax bill on time or you’re experiencing financial difficulties you can contact the dedicated helpline on 0800 024 1222.