When is a business entitled to a VAT refund?

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Updated: 24th August 2021

Understanding HMRC VAT refunds, arrears, and deferment

VAT is a tax collected by businesses on behalf of the Treasury. When a business overpays on VAT they’re entitled to a refund from HMRC. This may be paid back within 10 days of submitting a VAT return, but it can take longer.

Under normal circumstances it’s a straightforward process, but the coronavirus pandemic and subsequent disruption to businesses in general have created additional issues related to cash flow.

How has coronavirus impacted VAT refunds?

The start of the coronavirus pandemic led to government initiatives and supportive schemes to help businesses relieve cash flow pressures due to trading restrictions and the widespread economic downturn.

One of these initiatives was the deferral of VAT payments. Additionally, interest and penalties were suspended on overdue amounts. The initial scheme allowed VAT-registered businesses to defer payment of their VAT for the period 20th March 2020 to 30th June 2020.

The original repayment deadline was set for the end of March 2021, but the relentless nature of the pandemic has resulted in a 12-month extension by the Chancellor. This acknowledges the severity of the financial issues companies are continuing to experience.

Potential connection between VAT refunds and deferred repayments

When repaying arrears of VAT that are related to coronavirus, deferred liabilities are divided equally, potentially for up to 11 instalments during the extended time period. This is helping businesses manage their cash flow effectively, and plan for a more stable operational future post-Covid.

If a business is due a VAT refund, however, and still owes money to HMRC through the deferral scheme, will that business receive a standalone refund? What’s the likelihood of HMRC offsetting a refund against the VAT arrears owed by that business?

Are VAT Refunds offset against VAT Arrears?

Unfortunately, HMRC are more likely to offset a VAT refund against an amount that’s still due, rather than paying a standalone refund. The problem for businesses is that this could disrupt their cash management plans for the coming months, and create renewed financial pressures and uncertainty.

At a time when business is emerging from the most damaging effects of national lockdowns and local restrictions, some confidence surrounding budgeting and controlling monthly outgoings is important.

So what can businesses do if their cash flow is compromised once again? Can the risks be mitigated in any way?

Professional assistance if your business is entitled to a VAT refund

Real Business Rescue has extensive experience of dealing with HMRC, and can provide further advice if your business is entitled to a refund on VAT. We’re also insolvency specialists, and will present your best options to support cash flow.

These might include:

Alternative funding

You may find further financing that’s tailored to your business would help. Invoice finance, for instance, would generate regular inputs of cash throughout the month via your sales ledger.

HMRC Time to Pay

HMRC’s Time to Pay arrangement, or (TTP), is a separate scheme from the VAT deferral initiative and could provide an extra few months to regain control if you’re concerned about corporation tax or PAYE liabilities.

It’s crucial to obtain professional help at an early stage if you believe your business is in danger of sliding towards insolvency. Even a minor disruption to cash flow could create a knock on effect to operational stability at this time.

Please get in touch with our partner-led team at Real Business Rescue to arrange a free, same-day consultation. We operate a network of offices throughout the country, so you’re never far away from professional support.

Keith Tully


0800 644 6080
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