VAT payment deferral deadline: act now to avoid 5% penalty

At the beginning of the coronavirus pandemic, HMRC introduced the Covid-19 VAT payment deferral scheme to support businesses across the UK. The scheme allowed businesses to defer VAT payments falling due between 20 March 2020 and 30 June 2021.

The VAT was originally deferred until 31 March 2021, but a further deferral extension gave businesses until 30 June 2021 to repay the VAT or arrange to pay in instalments.

However, if the deferred VAT is not paid and no arrangements are put in place by 30 June 2021, businesses face a 5% penalty charge in relation to the amount of deferred VAT outstanding.

What action must be taken to avoid a 5% penalty?

  • Pay in full before 30th June and HMRC will not charge any penalty or interest

Or, if you are unable to pay in full by 30 June 2021, and want to avoid penalties, there are 2 options:

  • Join the VAT deferral new payment scheme (online by 21 June 2021) 
  • Enter into Time To Pay arrangements with HMRC by 30 June 2021

Join the VAT deferral new payment scheme

The VAT deferral new payment scheme is currently open for applications, however, businesses wanting to join will have until 21 June 2021 before the portal closes.

The new scheme will allow you to:

  • pay your deferred VAT in equal instalments, interest-free
  • choose the number of instalments, from 2 to 8 (if joining in June 2021)

Note that the first instalment is payable on joining the scheme and all instalments must be paid by the end of January 2022.

There are a number of pre-requisites for joining the scheme, which includes:

  • still having deferred VAT to pay
  • staying up to date with VAT filing return declarations
  • joining the scheme online by 21 June 2021 (this cannot be done by your agent)
  • paying the first instalment when you join
  • being able to pay the deferred VAT instalments by Direct Debit. 

If a business is unable to use the online facility or pay by Direct Debit, HMRC has provided an alternative option to call the COVID-19 helpline on 0800 024 1222 and an adviser will assist.

Enter into Time To Pay arrangements

If you do not have the resource to pay the deferred VAT, contact HMRC by 30 June 2021 to agree on a 'Time To Pay' arrangement to avoid the 5% penalty. However, any time to pay arrangement outside of the VAT deferral new payment scheme will not be interest-free.

Here is the link to join the VAT deferral new payment scheme.

Get in touch

If you have any questions on the VAT payment deferral scheme please get in touch by clicking into the button below.

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