If you decided to defer VAT last year due to the first Coronavirus pandemic lockdown, you will soon be able to opt-in to a payment scheme. Here’s how to pay your outstanding VAT.
Deferred VAT payments
In support of businesses struggling with income during the first pandemic, the Government announced on 20th March 2020 that there would be a three-month deferral of payments.
Four key facts
- The deferral was available to all UK VAT registered businesses
- It covered payments due between 20th March and 30th June 2020, excluding VAT MOSS payments
- There was no need to apply or notify HMRC
- Businesses do not need to pay interest on penalties on deferred VAT payments
While the initial deadline for repayment was set for 31st March 2021, the Chancellor’s Winter Economy Plan added the option for businesses to repay deferred VAT over 11 months in the 2021/22 tax year.
Options for paying your deferred VAT
The deferred payment can either be paid in full on or before 31st March 2021, or over a number of instalments in the 2021/22 tax year.
If you choose to pay in instalments, your business can make between two and 11 payments to HMRC without incurring interest or penalties. All instalments must be paid by the end of March 2022.
Deferred VAT payment scheme opt-in criteria
HMRC has published criteria for businesses who wish to use the payment scheme. Their advice states that to use the scheme, you must:
- still have deferred VAT to pay
- be up to date with your VAT returns
- opt-in before the end of March 2021
- pay the first instalment before the end of March 2021
- be able to pay the deferred VAT by Direct Debit
Getting ready to opt-in to the VAT payment scheme
HMRC will open the online opt-in process in early 2021, although we have not yet heard of an exact date. You can prepare now for when the portal opens by:
- creating your own Government Gateway account, if you don’t already have one
- submit any outstanding VAT returns from the last 4 years
- correct errors on VAT returns
- calculate the amount you owe, including the deferral and any payments already made
If you are able to pay a balance now, you should do so before the portal opens so that the deferred VAT balance for the payment scheme is correct. You should also work out the right number of equal instalments for your business.
Catch up on missing returns with MTDfVAT
In order to use the deferred VAT payment scheme, you must be up-to-date with your VAT returns for the last 4 years. You can use our MTDfVAT software to easily identify and submit these returns. The software will display any open obligations remaining on your account on the easy-to-use VAT dashboard.
If you’re struggling with deferred VAT payments or other taxes
With a third national lockdown underway, many businesses are again facing closures and reduced income. While we have not yet heard of any additional VAT payment deferral options, HMRC has announced a Time to Pay Arrangement option. To find out more, check the guidance on gov.uk
About MTDfVAT
Our MTDfVAT software was developed alongside HMRC’s Making Tax Digital for VAT pilot to provide smaller businesses with an affordable choice for their VAT returns.
Key benefits of MTDfVAT
- No need to spend money on updating legacy systems: because MTDfVAT is bridging software, it is carefully designed to work with bookkeeping systems and Excel spreadsheets, so you don’t need to pay extra to upgrade to expensive bookkeeping software.
- An easy way to be compliant – even after the soft-landing period: our software is intuitive and allows you to keep your digital records in Excel. Even after the soft-landing period expires, you will remain compliant with Making Tax Digital for VAT rules thanks to the digital bridge created by MTDfVAT
- Excellent email support: our support team are experts in remote support, giving you peace of mind that software guidance is just an email away.
Plus, it’s affordable. At £50 +VAT per year, you can file returns for your business and be confident that your software will always keep in-line with HMRC’s guidance.