VAT Deferral Scheme Due to Coronavirus

The chancellor has announced the introduction of a VAT deferral scheme, allowing businesses to delay payment of VAT between 20 March 2020 and 30 June 2020.

What is the VAT Deferral Scheme?

The VAT deferral scheme was introduced to offer financial support to businesses, struggling with cash flow due to the impact of Covid-19. It was announced in April 2020 and amended on 24 September 2020 to further support businesses.

The scheme permits VAT registered businesses to delay payment of any VAT due between 20 March 2020 and 30 June 2020 until 31 March 2021. So that affects VAT periods ending February 2020, March 2020 and May 2020.

How to Apply for the VAT Deferral Scheme

You don’t need to apply for the scheme if you are planning to pay your VAT by 31 March 2021, you can just withhold your VAT payment. But make sure you:

  • Cancel any direct debits because it’s unlikely you’ll get any refund for accidental payments;
  • File the VAT returns as normal
  • Pay VAT in full on payments due after 30 June

You must pay your VAT in full by 31 March 2021 but you can also make part payments towards the outstanding amount until then.

If You Cannot Pay Your VAT by 31 March 2021

On 24 September 2020, the Chancellor announced that businesses who deferred VAT due from 20 March to 30 June 2020, to give them the option to pay in smaller payments over a longer period of time.

Instead of paying the full amount of VAT deferred by the end of March 2021, businesses can make smaller payments up to the end of March 2022, interest free.

You will need to opt-in to the scheme and discuss this with HMRC to arrange a time to pay. Contact HMRC on 0300 200 3835 to talk about your options and extending your time to pay to the end of March 2022.

Interest and Penalties

You must submit your VAT returns other you’ll risk receiving an assessment from HMRC and you won’t be able to take advantage of the VAT deferral scheme.

HMRC should not charge you interest and penalties on outstanding VAT until 31 March 2021. If you wish to extend your time to pay your deferred VAT then you must contact HMRC to agree on a payment plan and that way you’ll avoid interest and penalties.

New Here? Learn how to set up the financial side of your business with these easy to understand guides and resources:

  • Sole Trader or Limited Company? – Download my free calculator to check which business structure would help you to pay less tax;
  • Tax Records and Bookkeeping – Understand what tax records you’ll need to keep and how to set up your own bookkeeping system;
  • Self Employment Taxes Explained – Learn what taxes you’ll pay, how much and when;
  • VAT Guides – From registration to de-registration, VAT schemes and thresholds, these guides will take you through the basics every UK small business owner needs to know;
  • Invoice Template – Free template and step-by-step guide so you can get paid by your clients.
Anita Forrest
About Anita Forrest

Anita Forrest is a Chartered Accountant, spreadsheet geek, money nerd and creator of - the UK small business finance blog for the self-employed community. Here she shares simple, straight-forward guides to make self-employment topics like taxes, bookkeeping and banking easy to understand.