To help businesses during the unfolding Covid-19 pandemic, the Government introduced a deferred VAT payment period between March to June 2020.
Chancellor Rishi Sunak went a step further in his Winter Economy Plan, announced in September, with a ‘New Payment Scheme’ for VAT deferrals.
If you have deferred VAT payments, you could take the pressure off your cashflow by paying in instalments but why is it vital that you act now?
How does the New Payment Scheme work?
“The scheme offers any businesses with deferred VAT payments the option to pay in 11 interest-free instalments over the 2021/22 financial year,” says Emma Roberts from One Click Accountant.
“Essentially, this means that for qualifying businesses any VAT received between March 20 and June 30, 2020 does not need to be paid in full until the end of March 2022.”
“Having the ability to pay a portion of VAT in bite-size chunks is a much needed bonus for businesses, especially when the new national lockdown is putting pressure on cashflow”Emma Roberts, One Click Accountant
“Every business owner knows that cash is king, so being able to maintain a healthy level of working capital will be vital over the coming months,” continues Emma.
“We are urging our clients to take advantage of the instalments option, even if they have the funds to settle in full.
“The scheme is not compulsory and any business which wants to pay its deferred VAT in full, can still do so by March 31, 2021.”
How do I apply to pay by instalments?
“The key thing to note is that businesses with deferred VAT payments will not automatically join the scheme,” warns Emma.
“Each business must opt in using a process which HMRC will be launching in early 2021 — your accountant or agent cannot do this for you.”
“It is also important to ensure that all your paperwork is up to date, for example:
- Ensure existing HMRC direct debits are cancelled to prevent paying in full. A new direct debit will need to be arranged so the HMRC can receive instalments
- Continue to submit VAT returns on time.
- Settle in full any VAT payments covering the periods after June 30, 2020.
“Businesses should not assume that further instalment schemes will be offered by the Government,” Emma adds.
“Keep up to date with all your other HMRC payments to avoid costly penalties. Now more than ever, business owners need to take a long hard look at their financial forecasts.
“If you are struggling to meet your current tax payments, you should contact HMRC immediately.”
I’ve already paid in full, can I claim a refund?
It has been reported that many businesses wishing to defer their VAT payments unwittingly paid in full as they did not cancel their existing HMRC direct debit in time. Fortunately, HMRC has said that these businesses can now claim a refund.
“One way to do this is to send a direct debit indemnity claim to a bank,” advises Emma. “You will need to contact your bank for full details of how to claim.”
“In conclusion, you can also ask for a refund direct from HMRC using the coronavirus helpline. Due to COVID-19 restrictions, it can take up to 21 days for refunds to be received.”