Deferred your VAT from June 2020? Apply now for payment plan!

As we reported last year (here), if you took advantage of HMRC’s scheme to defer your VAT payments between 20 March and 30 June 2020 (as most did), you are required to pay the VAT debt in full by 31 March 2021.

Pay over 11 months

However, you can now pay the amount owed over 11 months by applying via an online portal which will be open from 23 February 2021, but tax agents (like Salonfrog) cannot do this on behalf (although you will be charged interest at 2.6% from 1 April 2021).

HMRC is asking businesses to pay their VAT debts in full by 31 March 2021 if they can. Where the cash is not available the business must apply online to spread the payment of the debt over up to 11 instalments ending in January 2022.

If you don’t pay the full amount by 31 March 21 or join this scheme to pay over 11 months, HMRC will impose penalties for late payment, and possibly initiate debt collection action against you.

Online portal

The company director or business owner must access this portal themselves, tax agents nor their accountants can’t use it to arrange a VAT payment plan on behalf of clients.

This is because as part of the payment plan the business must set up a direct debit to make regular payments from their business bank account. Tax agents don’t have the authority to make payments out of clients’ bank accounts, so can’t enter the agreement on behalf of clients.

Conditions

Before a business can use this new VAT deferral scheme it needs to get all its VAT ducks in a row as follows:

• submit all its outstanding VAT returns for the last four years
• correct any errors on past VAT returns
• know how much VAT was deferred
• know how much of that deferred VAT debt is still outstanding
• have enough cash ready to pay the first instalment of the VAT due immediately.

The good news is HMRC will allow businesses to arrange a payment plan for the deferred VAT even if they have already entered a time to pay arrangement for other taxes.

The business owner/ director must have the authority to set up a direct debit to pay the remainder of the debt by monthly payments. Where a direct debit can’t be set up, perhaps because there is no UK bank account, or the account has two signatories, the business owner must call HMRC on 0800 024 1222.

If the business doesn’t have the cash to even pay the first instalment of VAT, the owner should contact the HMRC payment support service on 0300 200 3835.

Join sooner rather than later

HMRC wants all of the deferred VAT paid by 31 January 2022, so the later the business signs up to this scheme to spread the payments, the fewer instalments will be available to it.

For example, if the business joins the scheme by 19 March it can spread the payments over 11 instalments starting in March 2021, but if it joins the scheme in June 2021 it can only spread the debt over eight instalments.

If the business owner can’t use the online portal, they should call HMRC on 0800 024 1222 to arrange a payment plan, and this telephone service will be open until 30 June 2021.