Act now to avoid penalties on deferred VAT

10 June, 2021

The Association of Taxation Technicians (ATT) is highlighting that businesses who deferred VAT payments during the early stages of the COVID-19 pandemic must act in the next few weeks to avoid a financial penalty.

To support businesses during the COVID-19 crisis, a total of £33.5 billion of VAT payments1 due between 20 March 2020 and 30 June 2020 were deferred automatically by HMRC. 

In order to avoid a penalty for late payment, businesses with outstanding deferred VAT balances need to either:

  • join the ‘new payment scheme’ by 21 June 2021; or
  • pay the VAT owed in full or contact HMRC for extra time to pay by 30 June 2021. 

ATT President Jeremy Coker said:

“The new payment scheme allows businesses to defer their VAT payments for a longer period, spreading them over up to eight monthly instalments interest free. But you need to act fast to take advantage of this scheme because the deadline for signing up is 21 June 2021.”

The usual VAT penalty regime does not apply to deferred VAT. Instead, Finance Act 2021 introduces a new penalty of five per cent of any deferred VAT outstanding if businesses have not opted into the new payment scheme, or paid in full or made an alternative arrangement to pay, by 30 June 2021.

Jeremy Coker said:

“Businesses with outstanding deferred VAT balances must decide now whether they are in a position to pay HMRC in full by the end of June. If not, they should consider applying for the new payment scheme.

“Businesses can sign up for the new payment scheme online. There are, however, a number of conditions which need to be met. In particular, businesses have to be up to date with their VAT returns.

“If businesses are struggling to pay and miss the 21 June sign-up deadline for the new payment scheme, or cannot join the scheme for any other reason, then in order to avoid a penalty they need to contact HMRC as soon as possible, and by 30 June at the latest, to discuss alternative payment options.”

Notes for editors

  1. Taken from HMRC’s official statistics: www.gov.uk\government\collections\hmrc-coronavirus-covid-19-statistics#vat-payments-deferral-scheme
  2. Further information on the HMRC’s guidance on the new payment scheme and repayment of deferred VAT can be found on the ATT website and GOV.UK.