Due to the impact of coronavirus, the deadline for VAT payments has been deferred to the end of June. The Tax Faculty of the ICAEW describes the choices accessible to firms to avoid a 5% penalty.
Moreover, the possibility to defer VAT payments due between 20 March 2020 and 30 June 2020 was one of the first tax reliefs for businesses affected by the coronavirus outbreak. The VAT was initially postponed until March 31, 2021. However in September 2020, a new delay was announced, giving firms until 30 June 2021 to return the VAT or arrange for payment in instalments.
If agreements are not made by this date, firms will be subject to a 5% penalty and/or interest payable on the amount of deferred VAT that remains unpaid.
Businesses have the following options to avoid the 5% penalty:
- Pay the postponed VAT in full by June 30, 2021.
- enrol in the new VAT deferral payment system (online by June 21, 2021)
- make other arrangements to pay HMRC by June 30, 2021.
Paying the VAT Amount in full
HMRC has clarified that if a business pays its deferred VAT in full by June 30, 2021, they will not be charged interest.
The new payment scheme for VAT Deferral
Businesses that want to participate in the new VAT deferral payment programme have until June 21 to apply via the online portal.
Other businesses that are unable to utilise the online facility can join the plan by calling HMRC’s Coronavirus Helpline at 0800 024 1222 until June 30, 2021.
Businesses that join the programme by the 30th of June will not be penalised and will be allowed to pay their postponed VAT in two to eight interest-free instalments. The initial payment is due when you join the programme.
Being up to date with submitting VAT returns and agreeing to pay the instalments by direct debit are two of the requirements for joining the programme.
Choosing a payment schedule
If a firm does not have the resources to pursue the above two options, it can avoid the 5% penalty by contacting HMRC before 30 June 2021 to set up a time to pay arrangement. The main distinction is that VAT repayments will not be interest-free.