Instalment payment plan for VAT deferred under Covid-19 scheme

On 23 February 2021, the Government opened its instalment payment plan for VAT payments originally due during the period March to June 2020. Businesses that have not already paid their VAT for the deferral period are able to either pay a lump sum by 31 March 2021 or opt into the instalment plan and pay over an eleven month period between March 2021 and January 2022. 

It's excellent news that businesses opting into the plan and making all their instalment payments on time will not be charged interest (or penalties) for late payment of the VAT. In practice this extends the original interest-free loan from the Government under the deferral scheme.

Opting in

Businesses must opt into the instalment plan to participate and will be able to do so until 21 June 2021. Plainly, as the instalment payments commence on 19 March, the earlier a business opts in, the smaller each instalment payment will be: ie spread over 11 months if you opt in immediately but only 9 months if you don't opt in until May. 

HMRC is insisting that businesses can only join this instalment plan if all their VAT returns are up to date, but the fact that the business has already signed up for a time-to-pay agreement in respect of VAT or other taxes will not prevent it from joining. HMRC does however require that any errors in the business's VAT returns for February, March, April and May 2020 are corrected prior to joining the scheme.  

The instalment payments must be made by direct debit from a UK bank account and businesses must make the first payment when they sign up to the instalment plan.  Any Business that does not have a UK bank account or is unable to pay by direct debit will need to call HMRC s COVID-19 helpline 0800 024 1222 between 23 February and 21 June to join the instalment plan.

In a similar vein to other online services from HMRC initiated as a response to the pandemic, businesses are unable to delegate the opt-in activity to their tax advisers and businesses will need a Government Gateway account to register for instalments. In addition, businesses that already use the VAT payment on account or VAT annual accounting systems are unable to sign-up on 23 February. They will be invited to opt in by HMRC in March when its systems have been updated to support their circumstances. The final date by which all users of the instalment plan must pay their deferred VAT is 31 March 2022. .

 As much of the UK economy remains in lockdown, some businesses may have difficulties making the initial payments under the scheme and the idea of waiting until trade may have picked up may be attractive. Nevertheless, the price of missing the 21 June opt in deadline could be high.