Sarah Halsted

Written by: Sarah Halsted

Sarah Halsted

Technical Associate Director

HMRC prepares to launch new payment scheme to pay back VAT deferred because of Covid

HMRC is about to launch its new payment scheme, which will allow businesses who took advantage of the government’s VAT deferral scheme to repay this VAT over a longer period. 

The VAT deferral scheme, first announced when coronavirus lockdowns started in spring 2020, allows organisations to settle the VAT that was payable on their VAT returns due between 20 March and 30 June 2020 by 31 March 2021. However, by opting into the new payment scheme, businesses can extend this repayment period by making up to 11 smaller interest-free payments of the deferred VAT during the 2021-22 financial year. 

This new online service will be open between 23 February and 21 June 2021. Full details and conditions can be found here. Most businesses will be able to opt in immediately, although HMRC says that users of the VAT annual accounting scheme or the VAT payment on account scheme will be invited to join the scheme later, in March 2021.

HMRC says that the time a business opts in will determine the maximum number of instalments that are available, for example those who join by 19 March 2021 may pay off their deferred VAT over 11 instalments. By contrast those that opt in between 20 May and the closing date of 21 June can only spread their payments over 8 instalments. While many users of the scheme will benefit from opting in immediately to make smaller payments over a longer period, businesses that remain closed due to lockdown and have little cash flow may prefer to wait until later in the sign-up window before they make their first payment.

It is important to note that users of the online scheme must have a Government Gateway account and pay their instalments by direct debit. The VAT registered business must opt in itself – there is no facility for an agent to do this for them, even if the business has authorised an agent to submit VAT returns on its behalf. 

Initially this raised concerns that the new payment scheme would effectively exclude traders who do not wish to engage with HMRC online and rely on third parties to help them with compulsory online VAT filings. However, HMRC says those who want to opt in, but cannot use the online service, should contact its coronavirus helpline when the scheme opens and 'an adviser will help you join'. 

Assuming this offer extends to digitally excluded traders as well as those who can’t use the online system because they don’t have a UK bank account or can’t use direct debit, this is a very welcome development. Many other HMRC tax relief applications are strictly online-only, thus denying important benefits to a significant minority of taxpayers who do not wish to deal with HMRC this way. 

HMRC has been required to hastily create several new digital systems over the last year or so in response to the pandemic and Brexit. In these difficult circumstances, HMRC is to be commended for creating an alternative way to access this important coronavirus VAT easement.

Nevertheless, some concerns remain for those who cannot opt in online. 

First, getting through to HMRC on the phone is not always easy, and applicants may have to be patient and persistent to speak to an advisor. Also, HMRC’s decision not to allow agents to sign up their clients to the new payment scheme means that some businesses will be faced with a situation where they have ‘bought a dog but must still bark themselves’. Many will nonetheless feel they need their agent’s support and advice when joining the scheme and will therefore end up incurring extra costs anyway. 

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