When to pay VAT which was deferred due to COVID-19

In recent weeks, HMRC has issued a number of updates to the COVID-19 VAT payment deferral scheme.

Many organisations took advantage of the COVID-19 VAT payment deferral scheme, allowing them to defer VAT payments falling due between 20 March 2020 and 30 June 2020 until 31 March 2021. HMRC has issued guidance on the process of extending the deferral to the end of January 2022.

If an organisation has deferred VAT between 20 March 2020 and 30 June 2020 and still has payments to make, it has three options.

• Pay the deferred VAT in full on or before 31 March 2021.
• Opt in to the VAT deferral new payment scheme between 23 February and 21 June 2021.
• Contact HMRC on 0800 024 1222 by 30 June if extra help to pay is required.

Opt in to the VAT deferral new payment scheme

Instead of paying the full amount by the end of March 2021, up to 11 equal monthly instalments can be made, interest free. All instalments must be paid by the end of January 2022and this is slightly earlier than previously thought.

The new deferral scheme will be available to join from 23 February and up to and including 21 June 2021. For organisations using the VAT annual Accounting Scheme or the VAT Payment on Account Scheme, an invitation for the new scheme will be sent out in March 2021.

The scheme will allow organisations to:

• pay deferred VAT in instalments without adding interest.
• select the number of instalments from 2 to 11 equal monthly payments. The maximum number of instalments will depend on when the scheme is enrolled into. For example if an organisation registers in March 2021 then it will be able to defer the payments over 11 or fewer instalments.

HMRC have provided a table in its guidance that sets out the monthly joining deadlines and the corresponding number of maximum instalments.

To use this scheme, organisations must:

• still have deferred VAT to pay
• be up to date with VAT return declarations
• join the scheme by 21 June 2021 – this cannot be done by your agent
• pay the first instalment when you join
• be able to pay the deferred VAT instalments by Direct Debit. If Direct Debit payments aren’t possible, HMRC have provided an alternative option to call the COVID-19 helpline when the scheme opens on 0800 024 1222 and an adviser will help you join.

How to opt in

Before opting in organisations must:

• create a Government Gateway account
• submit any outstanding VAT returns from the last four years.
• correct any errors on submitted VAT returns as soon as possible. Corrections received after 31 December 2020 may not show in the deferred VAT balance
• make sure the amount owed is known, including the amount originally deferred and how much has already been paid.

Correcting errors on deferred VAT returns

The deferral period for VAT included VAT returns with quarters ending February, March and April 2020 (as well as May 2020 for those on Payment on Account and non-standard tax period). If there is an error on returns that relates to the deferred period, organisations should complete an error correction form (VAT652) and submit this to the VAT error correction team by 31 March 2021. Crowe’s VAT team are available to help in preparing this documentation and communicating with HMRC.

If a correction leads to an additional payment that requires deferment, contact HMRC on 0800 024 1222 once HMRC has processed the error correction and a statement confirming the balance is received.

The additional payment can then be either:

• paid in full with the rest of the deferred balance
• included on the deferred balance and payment extended up to January 2022 by joining the new payment scheme
• contact HMRC on 0800 024 1222 by 30 June if extra help to pay is required.

Extra payments cannot be included after the deferral scheme has been opted in to.

Penalties

It was announced in the Budget 2021, that a penalty totalling 5% of any VAT still outstanding for payment at 31 March 2021 will be charged if that organisation had not opted into the new payment scheme or made an alternative arrangement to pay by 30 June 2021. This penalty will apply instead of the normal default surcharge regime.

Organisations need to ensure they have decided how to manage the VAT that was deferred. An application has to be made to access the new payment scheme – it is not an automatic enrolment system. As such, doing nothing is not an option and will likely result in a 5% penalty.

If organisations have difficulties in making these VAT payments, they should be able to agree a ’time to pay’ arrangement with HMRC. Crowe’s VAT and Custom’s Duty team can support you in applying for this.