VAT Deferral Payment Due to Coronavirus: When to Pay
It goes without saying that the COVID-19 pandemic has had a major effect on the world. It’s also had massive impacts on businesses across the UK. Many businesses were shut down for months on end, and some still have yet to recover. What’s more, is that many shut down permanently. Thankfully, Her Majesty’s Revenue and Customs authorities realized the impact COVID-19 has had on business. As such, the tax authorities allowed for VAT payments to be deferred.
To learn more about the deferral period and payment scheme, keep reading!
Here’s What We’ll Cover:
The VAT Deferral Payment Scheme
Between the months of March and June of 2020, businesses were allowed to opt-in for deferral of VAT payments. VAT payments were eligible for a 3-month payment deferral. This option was brought to the table due to the impact that the COVID-19 pandemic has had on businesses. The VAT payment deferral allowed many companies to reduce their losses at the peak of the pandemic. However, the payments have since come due.
Methods of Paying
Businesses that opted for the VAT payment deferment were given two options when it came to making payments.
- The businesses were asked to pay their outstanding VAT returns by 31 March 2021.
- They were also offered an alternative payment option. The alternative arrangement allowed for monthly payments.
If your business chose to make monthly instalments rather than paying in full, the payment scheme had to be signed up for by 21 June 2021. The scheme allowed businesses to sign up for 2 to 11 monthly instalments. However, this was entirely dependent upon when the business signed up.
If this option was chosen in March 2021, then the business could pay in 11 months. However, each month after that reduced the payment window as well. This means that if a business signed up in April 2021, they’d only have 10 months to pay. The authorities wanted to provide plenty of time to make payments due to the coronavirus pandemic.
Eligibility for Instalments
Not all businesses were able to make monthly instalments. They had to meet certain eligibility requirements, listed below.
- Must have opted into the VAT deferral scheme
- Must be up to date with VAT returns
- Joined by 21 June 2021
- Made the first payment upon joining
- Be able to pay using Direct Debit
Direct Debit was the method preferred by HMRC. However, if businesses were unable to use it, they were able to call the COVID-19 helpline for alternatives.
Businesses were required to contact Her Majesty’s Revenue and Customs (HMRC) authority if they could not make payments by June 2021. This was regardless of the payment option selected. If they didn’t, there were fees and penalties tacked on, possibly resulting in extra payments.
Fees and Penalties
For businesses that deferred VAT payments, penalties are assigned when payments aren’t made. If an arrangement wasn’t made or met, then a 5% penalty was added to the unpaid portion of the VAT. Furthermore, after the penalty was assessed, businesses only had 30 days to make the payment in full.
Appealing Against a Penalty
If a penalty was assigned to your outstanding VAT payment, it could be appealed. However, a reasonable excuse as to why the payment was not made is required. The list of reasonable excuses is below.
- A partner or relative died shortly before the payment deadline
- An unexpected hospital stay prevented you from paying
- A serious or life-threatening illness affected you when payment was due
- Your computer or software failed while preparing your tax return
- The HMRC online service was not functioning
- Fire, flood, or theft prevented the return from being filed
- Disability-related delays
- Unexpected postal delays
HMRC understands that the impact of the pandemic has continued, and it isn’t over yet. As such, the list of reasonable excuses is lengthy and largely flexible.
In addition to the reasonable excuses, you can request a statutory review. This request will involve an individual who wasn’t involved in the original decision reviewing your case again. Depending on the review, the penalty decision may be upheld, changed, or cancelled altogether. As always, if there are any questions regarding the VAT deferral scheme, professional advice can be sought from HMRC.
As the coronavirus pandemic continues, so do the exceptions being made when it comes to taxes and fees. HMRC is doing what it can to help make the lives of business owners better. One such scheme was the VAT deferral. Hopefully it helped you, too!
More articles regarding VAT are over on our resource hub. Be sure to visit it for any other information you may need!