HMRC to launch new VAT deferral payment scheme

HMRC has launched its VAT deferral new payment scheme for businesses who deferred their VAT payments last year due to the coronavirus.

The online service for the new payment deferral scheme opened from Tuesday to 21 June 2021. It is for businesses that deferred VAT payments due between 20 March and 30 June 2020 and still have payments to make. HMRC had first announced the original scheme in when lockdowns started in early 2020, and businesses that chose to defer their VAT payments had to pay in full by 31 March 2021.

Details of the new scheme

For businesses that still have VAT payments to make, the new scheme lets businesses pay their deferred VAT in equal instalments, interest-free. It also allows businesses to choose the number of instalments, from two to 11, depending on when a business joins the scheme.

Businesses joining before 19 March can choose up to 11 instalments, while businesses who join before 21 April can choose up to 10. Businesses joining the scheme before 19 May can choose up to nine instalments, while those joining after that date but before 21 June can choose up to eight.

Most businesses can sign up, but HMRC states that businesses on its VAT Annual Accounting Scheme or its VAT Payment on Account Scheme will be invited to join the new payment scheme later; in March. HMRC also added that businesses that join the new scheme can still have a Time to Pay arrangement for other HMRC debts and outstanding tax.

Although eligible businesses will have the option to spread their outstanding VAT payments over a longer period and in smaller instalments the earlier they sign up, it should be noted that because the first instalment needs to be paid immediately, the timing of when to join the scheme will be crucial. “While many users of the scheme will benefit from opting in immediately to make smaller payments over a longer period, businesses that remain closed due to lockdown and have little cash flow may prefer to wait until later in the sign-up window before they make their first payment,” said Sarah Halsted, national VAT technical officer at accountancy firm RSM.

How to join

Before joining the VAT deferral new payment scheme, businesses must create their own Government Gateway account (if they haven’t done so already), submit any outstanding VAT returns from the last four years and/or correct any VAT return errors; and must also ensure they know how much is owed, including the amount originally deferred and how much may have already been paid.

Businesses need to join the scheme themselves – an agent/tax adviser cannot do it on behalf of someone else – and instalments must be paid by direct debit, with the first instalment paid upon joining.

HMRC said businesses that want to join but cannot use the online service or pay by direct debit should “contact the COVID-19 helpline when the scheme opens on 0800 024 1222 [and] an adviser will help you join”.

Any errors on a VAT return relating to a period covered by the scheme (i.e. accounting periods for February 2020, March 2020, April 2020 – and May 2020 for those who pay on account or certain non-standard tax periods) – should be corrected by filling in form VAT652, and sending this to the VAT Error Correction Team. Once HMRC has processed the correction and sent the business a statement of account confirming the balance, a business can include the payments in their deferred balance and join the new payment scheme while it is open.

Extra payments cannot be included once a business has joined the scheme, and any error correction relating to the deferral period notified to HMRC after 31 March 2021 cannot be deferred.