Deferring VAT & Tax Payments

Last resourced 25 September 2020

***On Thursday 24th September, The Chancellor announced that businesses who deferred their VAT will no longer have to pay a lump sum at the end of March 2021. They will now have the option of splitting it into smaller interest-free payments over the course of 11 months. Any self-assessed income taxpayers who need extra financial assistance can also extend their outstanding tax bill over 12 months from January ***.

Please note: HMRC have confirmed that where taxpayers wanted to defer VAT payments due between 20 March 2020 and 30 June 2020 but did not manage to cancel their Direct Debit in time they can claim a refund. The quickest way for taxpayers to do so, according to HMRC, is to submit a Direct Debit Indemnity Claim to their bank, ensuring that they state they want to claim a refund under the Direct Debit Indemnity Scheme (DDI).

HMRC confirms that there is no time limit in making this request. If the taxpayer wants a repayment from HMRC rather than contacting the bank, they must ensure that their bank details are resourced using the online services. 

Deferring Valued Added Tax (VAT) payments for 3 months

The VAT deferral will apply from 20 March 2020 until 30 June 2020. This is an automatic deferral with no applications required.

Businesses will not need to make a VAT payment during this period. Taxpayers will be given until the end of the 2020 to 2021 tax year to pay any liabilities that have accumulated during the deferral period. VAT refunds and reclaims will be paid by the Government as normal.

No penalties or interest for late payment will be charged in the deferral period.

If you have set up a direct debit and have submitted a VAT return for February 2020 which is due for collection in early April 2020, then cancel the direct debit.

This is also creating a tax debt which will become due in later months, and so the business may need to resource cashflow forecasts and potentially agree a Time to Pay arrangement with HMRC. Businesses should remember this is not a grant, it is a tax debt and businesses should reflect that in their cashflows. 

It is worth noting the following points:

  • If you choose to defer your VAT payment as a result of Coronavirus (COVID-19), you must pay the VAT due on or before 31 March 2021.
  • VAT returns should continue to be prepared, filed and submitted as normal.
  • If you file VAT returns on a quarterly VAT stagger ending February 2020, your VAT return is still due to be filed by 7 April 2020, however, your payment is optionally deferred.
  • If you file VAT returns on a quarterly stagger ending March 2020, your VAT return is still due to be filed by 7 May 2020, however, your payment is optionally deferred.
  • If you file VAT returns on a quarterly stagger ending April 2020, your VAT return is still due to be filed by 7 June 2020, however, your payment is optionally deferred.
  • If you file VAT returns on a monthly basis, then your February 2020, March 2020 and April 2020 VAT returns should be filed as normal, however, payments for these returns are deferred.
  • VAT periods ending May 2020 are filed as normal, the VAT return is filed as normal and payment for it is due, as normal, by 7 July 2020, unless you file before  30 June 2020.
  • For payments for earlier periods, for example, a period-ended 29 February 2020 VAT return, due for payment by 7 April 2020, these payments are covered by the deferral arrangement and can be deferred to 5 April 2021

HMRC have also announced that they may issue ‘protective’ assessments where they consider returns are incorrect but where the detail has yet to be agreed by taxpayers and the error is approaching the legal 4-year capping deadline.

Deferring income tax payments from 31 July 2020 until 31 January 2021

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 application is required.

Following some initial confusion, HMRC has now confirmed that the deferral applies to all taxpayers. It is not necessary to be self-employed to be eligible for the deferral. 

The deferral is optional – some taxpayers may prefer to make the July payment to avoid a larger payment in January 2021.

Very few taxpayers pay their self-assessment liabilities by direct debit because the system requires a separate direct debit mandate to be set up 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.

Self-assessment returns should still be filed by their due date and 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 and perhaps crystallise any refund due, including as a result of any loss relief available.

Get in touch

If you have any questions or concerns, please get in touch with your usual Henderson Loggie.