What is the Coronavirus VAT deferment?

As a coronavirus relief measure for businesses, HMRC has temporarily deferred VAT payments to assist with cash flow for payments due between 20 March 2020 and 30 June 2020. If you’re a UK registered VAT business, you can automatically benefit from the three month VAT deferment until June 30, giving you the breathing space to focus on keeping your business afloat during the volatile economic circumstances surrounding the coronavirus outbreak.

The measure, as announced by Chancellor of the Exchequer, Rishi Sunak, provides a £30bn line of credit to over two million businesses in the UK. As the self-employed workforce and SMEs fight to stay above the tide during these uncertain trading conditions as a result of coronavirus, the number one priority is maintaining cash flow to keep up with the ongoing challenges posed by the virus.

If you choose to take the route of deferring your VAT payment, you must pay VAT due by the end of the 2020/21 financial year, which is 31 March 2021 for monthly VAT payers.

If you are making payments through direct debit, your upcoming VAT payment will automatically be deducted from your account. You will need to manually cancel your direct debit to benefit from the deferment. If you pay on a term by term basis, you will not need to inform HMRC of your intention to benefit from the deferment.

HMRC will not charge interest or incur penalties on the amount deferred as a result of the coronavirus business support measure. This will not affect your VAT returns, these will need to be submitted on time and HMRC will process VAT reclaims and refunds as usual during the period of VAT deferment.

Mini One Stop Shop (MOSS) - The deferment does not apply to businesses using the Mini One Stop Shop. This is the VAT scheme for businesses liable for VAT in several countries due to the provision of services to countries in the European Union. The scheme simplifies the process by allowing you to pay VAT to HMRC rather than registering in every country until the end of the Brexit transition period.

MTD for VAT, Phase 2 delayed – The second phase for Making Tax Digital has been delayed until 1 April 2021, however, VAT returns should be submitted on time. This measure was due to affect 1 million businesses in the 2020-2021 financial year, changing the way VAT returns are processed. Phase 2 consists of penalties for non-compliance and tightening up the link between accounting software and HMRC. This eases the pressure off businesses, helping them redirect focus on maintaining cash flow and retain staff during the COVID-19 outbreak .

Time to Pay Arrangement Scheme - If you have difficulty making VAT payments on a long term basis and see no repayment prospects, request a Time to Pay Arrangement. If approved, HMRC will restructure your VAT payments into affordable instalments.

 

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The coronavirus VAT deferment follows suit to a comprehensive list of business support measures announced by Chancellor Rishi Sunak to help SMEs cope with the intense pressure posed by COVID-19 which continues to grind businesses to a halt.