HMRC has announced temporary changes to the VAT payments due between 20 March 2020 and 30 June 2020 to help businesses manage their cash flow.
Businesses that have been affected by the COVID-19 pandemic and are seeking to make use of the VAT deferral have been urged to cancel their direct debits ‘as soon as they can’.
Businesses should contact their bank to cancel their direct debits as soon as possible.
A spokesperson for HMRC said: ‘For those customers who are unable to pay VAT due between 20 March and the end of June 2020, you have the option to defer that payment until 31 March 2021.
‘You will not need to apply for deferral as eligibility is automatic. Customers who normally pay by direct debit should cancel their direct debit with their bank if they are unable to pay. Please do this insufficient time.
A UK VAT registered business having a VAT payment due between 20 March 2020 and 30 June 2020 have the option to:
- defer the payment until a later date
- pay the VAT due as normal
- It does not cover VAT MOSS payments.
No Interest No Penalties
HMRC will not charge interest or penalties on any amount deferred as a result of the Chancellor’s announcement. However, customers will still need to submit your VAT returns to HMRC on time.HMRC will continue to process VAT reclaims and refunds as normal during this time.
Deferral of one quarter’s VAT
This will generally mean the deferral of one quarter’s VAT: the payment due on 7 April, 7 May or 7 June 2020 or the monthly payments due on each of these dates. HMRC has confirmed that the deferral also applies to payments on account. These are normally due on the last day of the second and third months in any VAT quarter for affected businesses. Consequently, the government can defer payments on account that are due on 31 March, 30 April, 31 May and 30 June.
If businesses choose to defer paying your VAT
If businesses choose to defer VAT payment due to COVID-19, they must pay the VAT due on or before 31 March 2021. They do not need to tell HMRC that you are deferring your VAT payment.
Payments made by Direct Debit
Businesses that have a direct debit mandate in place to pay their VAT and wish to defer payment will need to contact their bank to cancel that mandate. This needs to be done before the direct debit is due to be collected. Businesses will also need to remember to reinstate their direct debit mandate once the deferral is over. Agents cannot set up direct debit mandates on behalf of taxpayers.
After the VAT deferral ends
Businesses will have to pay VAT payments due following the end of the deferral period as normal. Further information about how to repay the VAT you’ve deferred will be available soon.
The deferral for income tax self-assessment applies to the second payment on account for 2019/20 due on 31 July 2020 which is deferred until 31 January 2021. This is an automatic offer and no need to apply for this.
Following some initial confusion, HMRC has now confirmed that the deferral applies to all taxpayers – not the self-employed only.
The deferral is optional. Some taxpayers may prefer to make the July payment to avoid a larger payment in January 2021.
Direct Debit Mandate
Very few taxpayers pay their self-assessment liabilities by direct debit because the system needs to set up a separate direct debit mandate for each individual payment. Any taxpayer that wishes to defer payment and has already set up a direct debit mandate for the payment on account due on 31 July 2020 should cancel it by contacting the bank.
Taxpayers should still file self-assessment returns by their due date. It may be advantageous to file the 2019/20 return as soon as possible after 5 April 2020. This might facilitate planning for the tax payment due in January 2021. Moreover, perhaps crystallise any refund due, including as a result of any loss relief available.
The businesses experiencing financial difficulties due to Covid-19 can get more help from HMRC’s Time to Pay scheme.