How businesses can defer VAT payments

Businesses that deferred VAT payments in 2020 can now register to split their repayments into up to 11 interest-free instalments.

As part of its COVID-19 support, the government allowed companies to defer VAT payments and over 500,000 businesses took advantage of the offer.

To make it easier for firms to pay what they owe, a new scheme has launched which allows businesses to spread their outstanding debts over smaller payments.

The number of instalments is dependent on when you register for the VAT Deferral New Payment Scheme:

• Register by 19 March 2021: 11 instalments

• Register by 21 April 2021: 10 instalments

• Register by 19 May 2021: 9 instalments

• Register by 21 June 2021: 8 instalments

You may be charged a 5% penalty or interest if you do not pay in full or register for instalments by the final deadline of 21 June.

To join the scheme, you must:

• have deferred VAT payments between 20 March 2020 and 30 June 2020

• join the scheme yourself as an accountant cannot do it for you

• still have deferred VAT to pay

• be up to date with VAT returns

• join by 21 June 2021

• pay the first instalment when joining

• pay instalments by Direct Debit (if you can't do so, call HMRC on 0800 024 1222 to join the scheme until 30 June 2021).

You must also:

• create a Government Gateway account (if you do not already have one)

• submit any outstanding VAT returns from the last four years or you won't be able to join the scheme

• correct errors on your VAT returns as soon as possible

• make sure you know how much you owe, including the amount you originally deferred and how much you may have already paid

Relevant resources

• Small business taxes: A guide

• Making Tax Digital for VAT: New rules and how to register

• Lunch and Learn: Prepare your new business for Making Tax Digital