Additional time to pay back deferred VAT
At the start of the pandemic, HMRC allowed VAT registered businesses to defer payment of any VAT that fell due in the period from 20 March 2020 to 30 June 2020.
In his Winter Economy Plan, the Chancellor extended the deadlines by which the deferred VAT must be paid, relieving some cashflow pressure on those businesses which had deferred their VAT payments.
VAT-registered businesses which took advantage of the opportunity to delay paying VAT that fell due for the quarters ending 29 February 2020, 31 March 2020 or 30 April 2020 were originally required to pay the VAT deferred by 31 March 2021.
Where making the full VAT payment by 31 March 2021 presents a challenge, businesses now have the option to pay the deferred VAT in smaller equal instalments up to the end of March 2022. These instalment payments will be interest free.
It is important to note those wishing to take advantage of the instalment option will need to opt into the scheme. Failure to opt in will mean the VAT owed must be repaid by 31 March 2021. We expect an opt in process to be in place in early 2021.
VAT due on VAT returns after 30 April 2020 must be paid in full and on time. Where direct debits were cancelled, these should be reinstated in good time, if this has not already been done.
Regardless whether the instalment option is chosen or not, any VAT deferred will need to be paid in addition to the usual VAT payments, and it is prudent to budget for this.