How do I repay the VAT I deferred because of COVID?

The option to defer VAT payments between 20 March and 30 June last year was welcomed by many businesses as it freed up much-needed cash for them during the lockdown. In order to take advantage of this scheme, businesses either didn’t make the payment or they cancelled their direct debit to prevent the payment being taken automatically.  

The VAT payment deferral period ended on 30 June 2020 so, as of 1 July, VAT registered businesses needed to:  

• submit VAT returns as normal, and on time  
• pay the VAT in full on payments due after 30 June  
• remembered to re-setup their Direct Debit instruction at least three working days before the payment is due if they wanted to continue paying by direct debit.  

Wondering which options you have to repay any deferred VAT back to HMRC? There are a few ways you can do this, by either: 

• choosing to pay in full, or pay in installments, at any point up until 31 March 2021 by making a bank transfer, ensuring that the VAT registration number and VAT return period to which the payment or payments relate to are quoted as a reference. 
• adding an extra amount to any quarterly or monthly VAT payments between now and 31 March 2021. If you choose to do this, please make sure that any additional payment reference refers to the current VAT return period to ensure that the amount paid is not allocated to the unpaid period in full.  
• opting in to the new VAT payment scheme when it launches next year and instead of paying the full amount by March 2021, you can make 11 smaller payments and all must be paid back by March 2022.  

If you chose to use the new VAT payment scheme, you will be able to:   

• pay the deferred VAT in instalments without adding interest  
• select the number of instalments from 2 to 11 equal monthly payments (depending on when you join) 

To use this scheme, you must:  

• still have deferred VAT to pay  
• be up to date with your VAT returns  
• join by 21 June 2021 
• pay the first instalment when you join 
• be able to pay the deferred VAT by Direct Debit. 

The government’s deferred tax scheme is now open and you can opt in here. If you want to join the new payment scheme, but cannot pay by direct debit, contact the COVID-19 helpline when the scheme opens on 0800 024 1222. An adviser will help you join. 

How to prepare for the opt in scheme  

In order to use the opt in scheme, there are a couple of things you can do to prepare.  

1. Ensure you have your own government gateway account. If you have not already got one, you can create your own government gateway account here.  It is extremely important to set up your own government gateway account as, without one, you will be unable to manage various areas of your business.  

2. Submit any outstanding VAT returns from the last 4 years.  

3. Correct any errors on your VAT returns.  

4. Make sure you know how much you owe, including the amount you originally deferred and how much you may have already paid. 

5. Pay what you can as soon as possible to allow us to show the correct deferred VAT balance  

6. Consider the number of equal instalments you’ll need, from 2 to 11 months. The number of installments available to you depends on when you join the scheme. Below sets out the monthly joining deadlines (to allow for Direct Debit processing) and the corresponding number of maximum instalments (including the first payment): 

It’s important to note that, because these payments need to be set up via a direct debit, you are required to set this up yourselves and we, as your agent, are unable to sign up on your behalf.  

If you were unable to cancel your direct debit in time to defer the payment and were unable to take advantage of the deferral scheme but still feel to do so could be of benefit or you are struggling to keep up with your VAT payments, please contact Jessica Mason on 01922 422292. Jess will happily talk through your circumstances and can advise on other HMRC schemes that could improve your business’ VAT cashflow.