How does the VAT deferral scheme work?

HMRC have published further guidance on how businesses can repay the VAT they deferred last Spring due to COVID-19.

Businesses have a number of options for deferred VAT:

  • Pay the deferred VAT in full, on or before 31 March 2021
  • Join the VAT deferral new payment scheme – the online service is open between 23 February and 21 June 2021.
  • Contact HMRC on Telephone: 0800 024 1222 by 30 June if extra help is needed

You may face a penalty or charged interest if you do not action one of the above options.

VAT deferral scheme

Payments can be made using 2-11 instalments, depending on when a business joins the scheme. The first instalment must be paid at the time of application, after which a number of instalments apply depending on your joining date.

The table below sets out the monthly joining deadlines (to allow for Direct Debit processing) and the corresponding number of maximum instalments (including the first payment):

If you join by:No. monthly instalments available:
19 March 202111
21 April 202110
19 May 20219
21 June 20218

All VAT returns in the last 4 years must be submitted or the scheme will be refused.

How to join the scheme

The VAT deferral new payment scheme will be open for applications from 23 February, up to and including 21 June 2021. To apply, you will need to sign in using your Government Gateway ID.

Click here to join the scheme

Anyone currently on either the VAT Annual Accounting Scheme or the VAT Payment on Account Scheme, will be invited to join the new payment scheme from March 2021.

Postponed import VAT Accounting

HMRC have also updated their guidance on how to account for postponed import VAT (“PVA”) on a VAT return.

Businesses using the flat-rate scheme must add the value of the imported goods to the total of supplies, before carrying out the scheme calculation.

In addition, the cash accounting scheme cannot be used for PVA accounting. PVA can be used when an import will be used for both business and non-business purposes, but not if you import goods you know will be used solely for non-business purposes.

Further information

Further details on applying and advice, including what to do if you’re unable to pay your deferred VAT, can be found on the GOV.UK website.

If you have any questions about VAT, then please contact us on 01903 234094 to speak to a member of our tax team.