How to settle VAT payments deferred due to COVID-19

15 November 2020| CATEGORIES: Covid measures, VAT| TAGS: ,

HMRC has updated its guidance explaining how to settle VAT payments deferred between 20 March and 30 June 2020.


An optional VAT payment deferral scheme was introduced as part of the UK government’s COVID-19 emergency VAT measures for businesses unable to make their VAT payments on time.

The scheme allowed VAT payments falling due between 20 March to 30 June to be postponed until 31 March 2021 without incurring interest or penalties.

Updates to HMRC’s guidance

HMRC’s guidance has been updated to report that the new VAT deferral payment scheme will be available in 2021 and that businesses must opt in themselves i.e. agents cannot do this for them.

The online opt-in process will be available in early 2021.

Options for paying the deferred VAT

Businesses that deferred their VAT payments can either:

  • pay the deferred VAT in full before 31 March 2021; or
  • prepare to opt in to the new VAT deferral payment scheme when it launches in 2021.

Businesses that need more help to pay should contact HMRC.

The new payment scheme

Instead of paying the full outstanding amount by the end of March 2021, businesses will be able to make up to 11 smaller interest free payments. All instalments will need to be paid by the end of March 2022.

To use this scheme businesses must:

  • still have deferred VAT to pay;
  • be up to date with their VAT returns; and
  • be able to pay the deferred VAT by Direct Debit.

Those opting-in to the scheme can still have a ‘Time to Pay’ arrangement for other HMRC debts and outstanding tax.

What businesses need to do now

Before opting-in to the new scheme, businesses should:

  • create their own Government Gateway if they don’t already have one;
  • submit any outstanding VAT returns from the last 4 years;
  • correct any VAT return errors as soon as possible. [Corrections received after 31 December 2020 may not show in the deferred VAT balance].
  • ensure they know what their deferred VAT balance is i.e. the original amount deferred, less any payments made;
  • pay what they can as soon as possible, to allow HMRC to show the correct deferred VAT balance;

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