During the pandemic HMRC allowed VAT bills to be deferred. Many businesses haven’t yet cleared the arrears. If yours is one, what steps can you take to avoid a financial penalty?
Deferred VAT. In 2020, during the first lockdown, the government authorised HMRC to offer VAT-registered businesses and other organisations the facility to defer their VAT bills. The deferral period applied to VAT that became due between 20 March 2020 and 30 June 2020. This deferral was separate to any other time-to-pay arrangement businesses had with HMRC.
Extra time. The deferred VAT could be settled all at once or by instalments. Either way, the deadline for full settlement was 31 March 2021 or penalties could apply. However, because so many businesses were struggling with the financial fallout from the pandemic HMRC threw them a lifeline by allowing them to further defer payment if they contacted it by 30 June 2021 and agreed a repayment schedule.
Tip. If you still have deferred tax owing but agreed a time-to-pay schedule, which you have stuck to, you’re safe from any further debt collection action or penalty for non payment of the deferred VAT.
Trap. If you still owe some of the VAT that you deferred between March and June 2020 and haven’t agreed payment terms with HMRC, you now face a fine on top of the debt.
Not too late. In December 2022 HMRC issued a warning to businesses etc. that they will be charged a penalty equal to 5% of the deferred tax still outstanding. However, the tone of the warning is conciliatory. It gives no deadline for settlement. It simply says “Anyone struggling to pay deferred VAT should contact us as soon as possible, as we can look at manageable payments according to individual circumstances.” The implication is that it may not charge the 5% penalty as long as you don’t delay in contacting it and agreeing terms to pay (see The next step ).
If you owe VAT you deferred in the first lockdown you must now pay it or HMRC may charge a penalty equal to 5% of the amount owing. But if you contact HMRC without delay and agree payment terms it may forgo the penalty.
The next step
HMRC’s debt management
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