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VAT payment deferrals for business – how does it work and how do I take advantage of it?

In response to the COVID-19 pandemic, the Government is allowing businesses to defer certain VAT payments with the intention of easing cashflow pressures during the pandemic.

The VAT deferral initially meant that all businesses with a UK VAT registration had the option to defer VAT payments due between 20 March and 30 June 2020. Businesses have until 31 March 2021 to make the payment in full, and no penalties or interest for late payments will be charged by HMRC. In practice this applied to the following:

  • Payments for quarterly returns ending February 29, 2020 (if not already paid by March 20, 2020).
  • Payments for quarterly returns ending March 31, 2020.
  • Payments for quarterly returns ending April 30, 2020.
  • Payments for monthly returns due between March 20, 2020 and June 30, 2020.
  • Payments on account due between March 20, 2020 and June 30, 2020.
  • Annual accounting advance payments due between March 20, 2020 and June 30, 2020.

The VAT deferral new payment scheme will be open from 23 February up to and including 21 June 2021.

Businesses don't need to inform HMRC that they'll be deferring their VAT payment, they simply need to cancel the payment. If your business normally pays by direct debit this will mean contacting your bank or cancelling the direct debit through online banking – this should be done as early as possible before the payments are due to be taken so HMRC does not attempt to automatically collect the payment.

Businesses deferring payments will still need to complete their VAT returns as usual by the normal deadline here.

The deferral scheme does not apply to VAT MOSS (a system of paying for VAT if your business supplies certain digital services to EU countries) or import VAT.

This article was first published on the Close Brothers Coronavirus Resource Hub