The portal for businesses to apply to spread their deferred VAT last summer is due to open on 23 February, but agents (i.e. us) can’t use the system on your behalf.
Last year, as a measure to support UK businesses during the pandemic, the government introduced VAT deferment, allowing VAT registered businesses to defer VAT payments due between 20 March and 30 June 2020. The deferment came with the added benefit of no interest or penalties for late payment, and provided some much needed cash flow support. Businesses have been able to repay the amount at any time, but now it’s time to pay up.
It’s payback time (literally)
We all knew the VAT was going to be due at some point, and we’ve advised clients every step of the way to make sure they have planned the payment and have cash available to repay on 31 March 2021.
The government has since introduced the ability for businesses to spread the payment (or at least some of it) until January 2022 - how nice!
The new scheme lets you:
- pay your deferred VAT in equal instalments, interest free
- choose the number of instalments, from 2 to 11 (depending on when you join)
If you don’t have the cash (which let’s face it, is a likely scenario for many businesses at the moment), you must contact HMRC to arrange a payment plan, which could see your liability being spread over up to 11 instalments.
Don’t assume that the time to pay arrangements automatically apply - failure to join the scheme to formally spread your payment means that HMRC will treat this as an ordinary overdue debt, and will impose penalties for late payment, and possibly initiate debt collection action.
To help ease the process of setting up your time to pay arrangement, HMRC has introduced a new online portal, which will be going live on 23 February. It will stay open until 21 June, so make sure you’ve got your plan in place.
Unfortunately, tax agents (that means people like us who file your returns for you) are unable to access the portal on your behalf. This means you will need to access the portal and arrange a payment plan yourself.
“Why can’t my accountants do this for me?”
Great question… as part of the process in setting up your payment plan, you are required to set up a direct debit to make the regular monthly repayments. For money laundering reasons, tax agents, accountants etc don’t have the authority to set up direct debits on your behalf.
On the bright side, you can still set up a payment plan to repay your deferred VAT even if you have set up time to pay arrangements for other taxes such as self-assessment tax.
Can’t get onto the portal?
If you’re struggling to access the online portal, you should contact HMRC on 0800 024 1222. This telephone support service will remain open until 30 June.
Getting your ducks in a row
As you’d expect, there are certain conditions that you will need to meet in order to be eligible for the VAT deferral scheme.
Sumit all outstanding VAT returns. You must have submitted all outstanding returns in the last 4 years i.e. HMRC needs your VAT filing history to be up to date.
Correct errors in past returns. If you’ve noticed an error on any past submitted returns, and are yet to make the correction, you must do so before applying for the scheme.
Know your deferred VAT liability. You will be asked how much the VAT liability that you deferred was as part of the process.
Know the outstanding deferred VAT balance. You may have already started paying back some of the VAT (well done!), but you will need to know how much is left to pay.
Be able to pay the first instalment. You need to make sure that you have the cash available to be able to pay the first instalment which will be payable immediately. You should not attempt to set up a payment arrangement if you are unable to pay this instalment.
Of course, it is always worth remembering that only an individual who has the specific authority to set up a direct debit on behalf of the business (generally the business owner or director) can set up a pay arrangement.
If a direct debit can’t be set up because, for example, the bank account has two signatories, or the business doesn’t have a UK bank account, then you can contact HMRC on 0800 024 1222.
Likewise, if the business doesn’t have sufficient cash available to pay the first instalment, the person of authority should contact the HMRC payment support service on 0300 200 3835.
31 January 2022 - the FINAL deadline
HMRC has set an aim to have collected all of the deferred VAT by 31 January 2022, so the earlier businesses sign up to the spread payment scheme, the more instalments will be available.
Our recommendation is, if you meet the above conditions, sign up to the scheme by 19th March. This will allow you to spread the deferred VAT payments over the full 11 months, helping to ease your cash flow.
Full guidance on the scheme can be found on the government website here.
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