The VAT Deferral Scheme: An Update
One of the valuable temporary coronavirus business measure introduced to aid business organisations through the difficult financial impact of the pandemic has been the VAT deferral scheme.
This has allowed all businesses, including law firms, to defer their VAT payments from 20 March 2020 to 30 June 2021 without having to make an application to do so. According to HMRC figures, £33.5 billion of VAT payments were deferred automatically by HM Revenue & Customs.
VAT deferral was available for the accounting periods February, March, April and May 2020 (though for May, only for payment on account customers and certain non-standard tax periods only, in addition to the above periods). In practical terms, this meant that the VAT payments do not fall due to be paid until 30 June 2021.
However, a new ‘opt in’ VAT deferral scheme was introduced in the Spring, enabling businesses who did defer their VAT to apply to defer VAT once again to the end of June 2021 (note: the online service for such applications closed on 21 June).
Under the new scheme, business can pay the amount owed in interest fee instalments of equal sums (up to 11 instalments depending on when application was made).
What does this mean?
Businesses need to be continually mindful of their payment obligations as far as taxation is concerned. It is important to keep up to date with changes in requirements and business measures introduced or modified to help business through this financially challenging period.
VAT deferral should not have a detrimental impact on other payment issues businesses may have with HMRC. Businesses who have joined the new deferral scheme can still have a Time to Pay arrangement for other HMRC debts and outstanding tax.
For those businesses who failed to apply in time to join the new deferral scheme and need more time, need to get in touch with HMRC to discuss the options available.
Penalties
Though penalties and/or interest may be levied on businesses that fail to pay in full on 30 June and have not deferred payments once again, the usual default surcharge rules for late payment of VAT will not apply to deferred balances.
Instead, under the Finance Act 2021 there will be a penalty – if levied for non-payment of deferred VAT– which has been set at 5 per cent of the outstanding amount, or interest.
So to avoid the 5 per cent levy, get in touch with HMRC as soon as possible to discuss the way forward. We also suggest you speak with specialist tax lawyers for further advice.
If you would like us to cover an issue in the next NGM Tax Law Newsletter, we would be pleased to hear from you