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Repayment of deferred VAT balances

David Gregory David Gregory

HMRC supported firms during lockdown by offering deferred VAT payments. Now confirmation of the repayment details has finally been released, David Gregory covers the key points.

In Spring 2020, as COVID-19 began to hit many businesses in earnest, the UK government announced a series of measures to relieve the immediate pressure on cash flows facing many businesses. This included the deferral of £28.2 billion of VAT falling due between 20 March 2020 and 30 June 2020, until 31 March 2021.

HMRC has now released updated guidance on the process by which businesses will repay VAT deferred under this scheme. These are the key points you should pay particular attention to:

Online opt-in requirement

Businesses who settle their deferred VAT under either the VAT Payment on Account Scheme, or the VAT Annual Accounting Scheme will be invited to join the scheme later in March. For everyone else, the online system to opt-in will open on 23 February 2021 and now close on 21 June 2021, rather than 31 March 2021, as previously announced.

Equal, monthly instalments

Under the scheme, businesses will repay their outstanding balance over a number of equal monthly payments, determined by the date a business joins the scheme, up to a maximum of 11.

First payment

The first instalment will only be payable when the business joins the scheme. This potentially offers additional liquidity headroom in H1 2021, by delaying the point at which a business opts in.

Later opt-in means fewer, higher instalments

However, on the flip side, the maximum number of instalments reduces by one for each month after March 2021 that a business delays opt-in to June 2021.

As such, joining on the following dates will mean these instalments:

  • 19 March - maximum 11 monthly instalments
  • 21 April - maximum 10 monthly instalments
  • 19 May - maximum nine monthly instalments
  • 21 June - maximum eight monthly instalments

This will increase the H2 2021 cash outflows for those opting in later.

Final payment deadline

The final instalment is required to be made by January 2022. This removes any ambiguity caused by previous references in HMRC guidance to deferred VAT repayments completing by March 2022. 

Time To Pay option still open for those that don’t opt-in

Any business that doesn't opt into the new scheme may still separately seek a Time To Pay arrangement for deferred VAT. 

However, interest or penalties may be levied on a business by HMRC if both:

  • deferred VAT remains unpaid at 31 March 2021
  • the business has not opted into the new scheme by 21 June 2021 or a separately agreed a Time To Pay arrangement in respect of the VAT.

Requirements and practicalities

Before a business is able to join the scheme, there are a number of requirements that must be satisfied for both online registration and historical compliance.

For example, the submission of any deferred VAT returns from the last four years or the creation of a government gateway account. It's also likely that the HMRC portal will be very busy in the final days of the deferral window.

With just over four months until the scheduled closure of the online registration window, businesses have time to plan how best to manage this additional cash outflow within the parameters set by HMRC.

I recommend businesses engage early with this process to ensure that they enter a payment plan that best suits their liquidity constraints and avoid a last-minute rush to meet the preconditions set out by HMRC.

If you need support in planning your deferred VAT repayment strategy, get in touch with David Gregory or Dan Knightley.

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