VAT WARNING – Reminder for business owners to reinstate their VAT direct debits
At the start of the COVID -19 crisis, the Government announced that changes were to be implemented to VAT payments that were due between 20th March 2020 and the 30 June 2020, to help businesses manage their cash flow. In effect, this means that VAT could be deferred for quarterly accounting periods ending in February, March and April.
If your business was UK VAT registered with a VAT payment due between the above dates, you were given the option to either defer the payment until a later date, or you could pay the VAT as normal. Where VAT is paid by direct debit, it was necessary to cancel the direct debit mandate, otherwise HMRC would have collected the VAT as normal. HMRC are not charging any interest or penalties on amounts deferred during this time period, but VAT returns are still required to be submitted to HMRC on time.
Deferral period coming to an end
With the deferral period coming to an end on 30 June 2020, businesses should take action to reinstate any cancelled direct debit mandates, so they are in place in time for payments due from 1 July 2020 onwards. This will also help to avoid any potential penalties for late payment.
The first quarter for which payment has to be made as normal will be those ending on 31 May 2020.
Further guidance on the end of the VAT deferral period is due to be issued by HMRC shortly, but we understand that HMRC will not collect the outstanding balance of deferred VAT when direct debit mandates are reinstated. The necessary changes have also been made by HMRC to avoid this happening for those businesses that use Making Tax Digital (MTD) for VAT.
Arrangements will also need to be made to pay any deferred VAT by 31 March 2021. Further guidance will be published by HMRC on the mechanism for collecting and paying this in due course.