Businesses that have deferred VAT are due to repay this in full to HMRC on 31 March 2021. However, the government has recognised the impact this would have and have announced an optional extension, which can be applied for between 23 February 2021 and 21 June 2021.

Deferred VAT can now be paid back in equal instalments from March this year up to January 2022 with between 2-11 instalments available. Previous guidance had suggested the extension would be to 31 March 2022, however the application process appears to preclude this, with 28 January 2022 appearing to be the latest payment date available, regardless of payment option chosen.

When choosing to apply, the choice is therefore between starting payments earlier and spreading these over a longer instalment plan with smaller periodic payments, or delaying the first payment until later, and then paying larger periodic instalment amounts over a shorter instalment plan.

The extension is optional, not automatic, so must be applied for. Whilst businesses are free to repay the deferred VAT in full by the end of March this year, many will want to avail themselves of this interest-free instalment option. Applicants should make sure their VAT compliance is up to date, as this may affect their eligibility for the scheme (see criteria below).

Opting in will not affect a taxpayer’s ability to agree, or continue, other time to pay arrangements with HMRC. Whilst this deferment extension is generous, HMRC recognise it will not be enough for some businesses and are therefore encouraging these businesses to get in touch before 30 June, to discuss other time to pay options. We have already seen HMRC agreeing longer instalment plans for such businesses, but these need to be negotiated directly with HMRC on a case-by-case basis.

Please note that interest or penalties can apply if no action is taken. To avoid these taxpayers should either:

a) pay the deferred VAT in full by 31 March 2021;
b) opt into the extension scheme by 21 June 2021; or
c) agree extra help to pay with HMRC by 30 June 2021.

HOW TO APPLY

• The online application is now live here. If the business does not yet have an online government gateway account, this should be set up as soon as possible. If you are on the Annual Accounting or Payment on Account schemes, the invitation will be later in March.
• The taxpayer (but not their agent) can apply between 23 February and 21 June.
• To qualify for the maximum 11 equal instalments with smaller instalment payments, applications need to be made before 19 March.
• Later applications will have fewer instalments of higher amounts, however these will start later permitting a longer payment free period for the next few months (see table below).
• Taxpayers should therefore consider the timing of their application in accordance with their preferred cashflow approach.

The below table details the application cut-off dates:

Whilst agents cannot make the application on your behalf (only taxpayers may apply) you may wish to discuss the application with your adviser, particularly if you have outstanding compliance issues, as these may affect your eligibility.

CRITERIA FOR ACCEPTANCE

It is unclear whether HMRC will query applications, but they have stipulated the following requirements to date for an application to be eligible:

• All VAT returns (for the last 4 years) must be submitted and errors in previous returns should be corrected (this will also help ensure the amount of deferred VAT is correctly recorded on HMRC’s systems).
• The taxpayer must know the exact amount of VAT deferred. This might have altered based on payments made, or any adjustments made to output or input tax for returns payable in the period 20 March – 30 June 2020 which qualified for deferment.
• The taxpayer must be able to pay the instalments by direct debit. However, if you wish to use the scheme but cannot pay by direct debit, contact the HMRC COVID-19 helpline on Tel: 0800 024 1222 after 23 February to ask for assistance joining the scheme.
• Likewise, if you do not have a UK bank account or have dual signatories on your account, please contact HMRC on the above number to discuss options.
• The first instalment must be paid when you join.

ACTIONS

The following suggested actions can help to prepare the application in advance:

1. Check that you have an operational government gateway and, if not, apply for one. Access this after 23 February for the online invitation to apply for an extension.
2. Ensure there are no outstanding VAT returns in the last 4 years.
3. Address any errors in VAT returns submitted in the last 4 years and correct and disclose these as soon as possible to HMRC’s VAT Error Correction Team in writing. Please note it can take HMRC’s systems some time to up-date so early action is recommended. Errors and corrections might create yet more VAT which you wish to defer, and this will need to be clarified and agreed with HMRC before 31 March.
4. It is important to note that you cannot include additional deferred VAT after you have joined the extension scheme. Therefore, errors which affect the amount of deferred VAT must be notified to HMRC before 31 March 2021 (VAT errors notified later cannot benefit from the extended deferment). Error corrections are not always straightforward, and advice should be sought when making these.
5. If you have any doubt over the amount of VAT deferred, this should be clarified with HMRC before 31 March.
6. Ensure the business can make direct debit payments to simplify the application process or discuss alternative options with HMRC as above.
7. Calculate and budget for the instalment payments. (If you are unable to meet payments agreed with HMRC this could invalidate the arrangement and you would need to discuss again with HMRC).