VAT deferral coming to an end

Businesses and sole traders are being reminded of the need to reinstate VAT direct debits as the deferral of payments as a result of coronavirus comes to an end on June 30.

The VAT payment deferral means that all UK VAT-registered businesses have the option to defer payments due between March 20 and June 30 this year – until March 31, 2021.

The deferral has been part of a package of measures taken by the government to support the economy during the coronavirus pandemic.

However, businesses and traders need to make sure any direct debit mandates that were cancelled are reinstated and back in place in time for payments due in July 2020 onwards.

Direct debit mandates usually need to be set up three working days before a VAT return is filed.

Agents cannot set up direct debit mandates on behalf of clients; the business needs to set up the mandate through its business tax account.

HMRC has confirmed that it will not collect the outstanding balance of deferred VAT when the direct debit mandate is reinstated. It says it has made the necessary systems change to avoid this happening.

VAT-registered businesses and individuals will be given until the end of the 2020 to 2021 tax year to pay any liabilities that have accumulated during the deferral period.

That means that arrangements will also need to be made to pay the deferred VAT by March 31 next year and further guidance is awaited from HMRC on the mechanism for that to happen.

VAT refunds and reclaims have been paid by the government as normal during the deferral period.