Updated: 11 March 2021

Latest update:

At the end of the September, The Chancellor announced a VAT deferral new payment scheme in his Winter Economy Plan.  The Scheme offers those businesses, that deferred VAT due in March to June 2020, the option to spread their payments over the financial year 2021/22 in up to 11 equal interest-free instalments.

All businesses who took advantage of the VAT deferral are eligible and can use the scheme. They will need to opt in using the new system HMRC launched on 23 February 2021. See here.

Businesses can join the scheme between 23 February 2021 to the 21 June 2021, however the number of instalments available for paying the VAT depends on when you join. For example, those joining the scheme by 19 March are able to pay back via 11 monthly instalments.  These decrease each month and, if you join the scheme between 20 May and 20 June you must pay the VAT back in just 8 instalments.  Fore more information see here

HMRC has indicated that those on the VAT Annual Accounting Scheme or the VAT Payment on Account Scheme can now join the Scheme (from 10 March 2021). See here.

Those that can pay their deferred VAT can still do so by 31 March 2021 and don’t need to contact HMRC to do this.  For more information here.

Note: Businesses/individuals must opt in themselves – their agent/accountant cannot do this for them.

Temporary reduced VAT rate for hospitality, holiday accommodation and attractions

The temporary reduced rate of 5% for hospitality, holiday accommodation and attractions has extended until 30 September 2021. A new reduced rate of 12.5% will apply from 1 October 2021 to 31 March 2022, at which point the rate will revert to the 20% standard rate.

Don’t get caught out for VAT payments due on or after 30 June 2020

The VAT payment deferral period ended on 30 June 2020. This means businesses will need to have:

• set-up cancelled direct debits in enough time for HMRC to take payment
• submitted VAT returns as normal, and on time
• paid the VAT in full on payments due after 30 June

Businesses who are struggling to make their current payments should contact HMRC:

• if they are unable to pay the VAT due and may need time to pay as soon as possible and before the payment is due
• for advice and information on other support available

If you were unable to cancel your direct debit in time during the deferral period:

While a large number of businesses who wished to defer their VAT payments have done so successfully,  some businesses missed this opportunity as they were unable to cancel their direct debit instruction in time. HMRC has recently confirmed that businesses which intended to defer VAT payments, but failed to cancel their direct debit in time, can now claim a refund. There are two methods available to businesses wishing to obtain a refund:

1. Indemnity claim via your bank – the quickest way to receive a refund is likely to be the submission of a direct debit indemnity claim to a bank. Businesses are encouraged to contact their bank for details of the relevant procedure to follow to make a direct debit indemnity claim as each bank may be different.
2. Repayment from HMRC – Refunds can be requested directly from HMRC via the coronavirus helpline. However, businesses are reminded to ensure that their bank details are updated using the online services and to be aware that due to COVID-19 restrictions, it may take up to 21 days for the refund to be received.

Deferred VAT and VAT grouping and deregistration

In Autumn 2020, HMRC clarified how deferred VAT interacted with VAT grouping and deregistration.

There is a single de-registration process for all businesses regardless of whether they have outstanding deferred VAT or not . The guidance for cancelling VAT registration can be found here.

If a business wishes to cancel its VAT registration it can do so even it has deferred VAT. The VAT remains deferred until 31st March 2021.

The deferred VAT is attached to the legal entity, not the VAT Registration Number (VRN). If a business with deferred VAT joins a VAT group (and so no longer has the previous VRN), the VAT liability remains with the business and does not transfer to the group.

Background information about the VAT deferral

The VAT deferral period

The VAT deferral covered any VAT return payment that had a date due between 20 March and 30 June.  This meant that the VAT periods that benefited were those starting on/around 1 February as those had a due date for payment of 7 April at the earliest.

So the monthly return periods were as follows:

1.         1/2/20 – 29/2/20 = due date was 7/4/20

2.         1/3/20 – 31/3/20 = due date was 7/5/20

3.         1/4/20 – 30/4/20 = due date was 7/6/20

For quarterly returns it was the quarters ending:

1.         29/2/20 = due date was 7/4/20

2.         31/3/20 = due date was 7/5/20

3.         30/4/20 = due date was 7/6/20

Businesses on the payments on account scheme

For businesses on the payments on account scheme HMRC has issued additional guidance to confirm that the VAT deferral applies to both payment for VAT return periods ending 29 February 2020, 31 March 2020 and 30 April 2020, and to payments on account due in the period 20 March 2020 to 30 June 2020.

The guidance was clarified on 27 April to confirm that, if you defer a payment on account between 20 March 2020 and 30 June 2020 but the balancing payment is outside of these dates, the amount you must pay is the balancing payment less any deferred payments. Deferring payments will not create a repayment.

Businesses using the annual accounting scheme

Businesses that make use of the annual accounting scheme only file one VAT return each year but are obliged to make monthly or quarterly payments on account throughout the year.  Guidance from HMRC confirmed that users of this scheme, that had payments due between 20 March 2020 and 30 June 2020, could defer payment. In September 2020 the payment could be deferred the ‘New Payment Scheme’ for VAT deferral (see above). It gives the option to spread the payments over the financial year 2021/22 in 11 equal interest-free instalments.

Eligibility for the deferral and further detail

All UK VAT registered businesses qualified for the deferral.  HMRC has also been confirmed that interest and penalties will not apply to deferred amounts.  However, it is essential that VAT returns are filed by the due date.

HMRC have also stated that there was no need for a business to apply for this.  Businesses should have filed the return as normal and HMRC simply did not collect the tax.  It was, however, recommended that businesses ensured that their banks didn’t try to process payment just in case the HMRC systems still tried to collect.  Any business that normally pays by direct debit should have contacted their bank in order to cancel it.

If you didn’t cancel your Direct Debit in time for the deferral

While a large number of businesses who wished to defer their VAT payments did so successfully, some businesses missed this opportunity as they were unable to cancel their direct debit instruction in time. HMRC confirmed that businesses which intended to defer VAT payments, but failed to cancel their direct debit in time, can claim a refund. There are two methods available to businesses wishing to obtain a refund:

1. Indemnity claim via your bank – the quickest way to receive a refund is likely to be the submission of a direct debit indemnity claim to a bank. Businesses are encouraged to contact their bank for details of the relevant procedure to follow to make a direct debit indemnity claim as each bank may be different.
2. Repayment from HMRC – Refunds can be requested directly from HMRC via the coronavirus helpline. However, businesses are reminded to ensure that their bank details are updated using the online services and to be aware that due to COVID-19 restrictions, it may take up to 21 days for the refund to be received.

Import VAT, Customs Duties, VAT Assessments

HMRC has confirmed that the VAT deferral only applies to VAT due in respect of VAT returns with due dates for payment between 20 March and 30 June 2020. All other VAT payments, including VAT assessments, must be made by the due dates.  The same applies to other taxes such as machine games duty and insurance premium tax.

Key points to note:

• Temporary relief is available in respect of import VAT and duty.
• The relief is available in respect of Covid 19 related medical supplies, equipment and protective garments.
• The import VAT rate is reduced to zero until 31 July 2020 and relief is immediately available to “state organisations”.
• Businesses that are importing these items and believe they may be eligible for relief can apply to HMRC via emailing niru@hmrc.gov.uk
• There is a list of eligible items and additional guidance on the HMRC website – see here.

All other importations will now be eligible for relief if the importer is experiencing severe financial difficulty as a result of Covid 19.  Details issued by HMRC are as follows:

Duty deferment account holders

Duty deferment account holders who experienced severe financial difficulty as a result of COVID-19, and who are unable to make payment of deferred customs duties and import VAT due on 15 April 2020, were able to contact HMRC for approval to enter into an extended period to make full or partial payment without having their guarantee called upon or their deferment account suspended.

The account holder should contact the Duty Deferment Office on 03000 594243 or by email at cdoenquiries@hmrc.gov.uk  or the COVID-19 helpline on 0800 024 1222. Account holders will be asked to provide an explanation of how COVID-19 has impacted their business finances and cash flow.

Duty Deferment account holders will be able to use their accounts during the extended payment period agreed, unless they default on a subsequent payment in that period – in which case HMRC may consider suspending their account. The outstanding payment will not affect their duty deferment limit so they will not need to increase their guarantee to cover the outstanding payment.

Where HMRC agree to an extended payment period, interest will not be charged on the outstanding payments provided they are paid in full by the agreed date.

Duty/import VAT payments not covered by a duty deferment account

Registered Importers who pay cash or an equivalent and faced severe financial difficulties as a direct result of COVID-19 can contact HMRC to request an extension to the payment deadline at the time the payment is due. They will be asked to provide an explanation of how Covid-19 has impacted on their business finances. HMRC will consider this request and decide whether or not to agree an additional time to pay. The decision will be taken on a case-by-case basis and could be refused.

If the request is approved the conditions, including the length of time offered, will depend upon the importer’s individual circumstances and may require the holding of a guarantee for the period of the time extension. HMRC cannot offer this facility to non-registered importers. For further information, contact the Customs Debt Policy inbox (custdebtrr.customspolicy@hmrc.gov.uk)

Time to Pay

The HMRC Time to Pay System has been enhanced and there is a dedicated helpline for businesses adversely affected by Covid 19. Tel: 0800 024 1222

Payments due in respect of time to pay arrangements that were already in place when the VAT deferral was announced must be made by the agreed dates.  However, any business that is struggling to meet those payments as a result of the pandemic should call the Helpline.

Making Tax Digital for VAT – delay for digital links deadline

Businesses with VAT periods ending after 31 March 2020 were due to have ensured their digital links were Making Tax Digital (MTD)-friendly, however, HMRC has extended the deadline.

In response to the impact of COVID-19, it has announced it is providing all MTD businesses with more time to put in place digital links between all parts of their functional compatible software. This means that all businesses now have until their first VAT return period starting on or after 1 April 2021 to put digital links in place.

So any accounting-related software (for example a hotel booking system that produces invoices to a customer) must have working digital links to the business accounting system by then.

If you have any VAT queries or concerns in view of the current situation, please please speak with your usual Shipleys contact or one of our specialist VAT team via vat@shipleys.com

Specific advice should be obtained before taking action, or refraining from taking action, in relation to this summary, if you would like advice or further information, please speak to your usual Shipleys contact.

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