by Michael Fotheringham, James Milne Chartered Accountants partner
IT is time to pay back deferred VAT payments, but UK businesses will be relieved to learn that they do not have to pay their bill right away. Companies can either pay up by the end of March 2021, or opt for a new instalment scheme to allow them to spread the cost.
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VAT-registered businesses were pleased in Spring 2020 to learn that they could defer their VAT payments, however, unsurprisingly, the Treasury is now calling time on the money it is owed.
The good news is that in order to help businesses manage their cashflow, the UK Government will allow businesses who have a deferred VAT Payment due from the period between 20 March 2020 and 30 June 2020 to pay in instalments.
Many business owners breathed a sigh of relief a year ago when VAT payments were deferred. A sudden, and relatively unexpected lockdown of the UK economy meant drastically reduced cashflows, and it was right that the Government recognised that firms would find it a challenge to pay large tax bills when the doors were closed.
Paying the deferred VAT bill in instalments is a sensible way for the Treasury to recoup its money. It allows business owners to plan their cashflow over the next few months – during a time when their businesses are still likely to be affected by the pandemic.
Businesses can pay the full amount on or before 31 March 2021 or opt, before 21st June 2021, to pay in up to 11 equal instalments, interest free. The maximum number of instalments reduces from March to June as the balance must be cleared by end January 2022.
Of course, there are a number of pre-requisites before businesses can join the scheme including being up to date with VAT returns, having submitted all VAT returns during the last four years, and ensuring that any errors on submitted returns are corrected.
The new VAT deferral scheme is open online now. Any business on the VAT Annual Accounting Scheme or Payment on Account Scheme will also be invited to join during March 2021.
The payments are interest-free, and must be paid in equal amounts, so the sooner businesses sign up to the instalment programme the better.
