COVID-19: VAT and self assessment payment deferral

Government is supporting businesses, deferring VAT and self assessment payments 

The Government is supporting businesses by deferring VAT payments and self assessment payments for six months. VAT payments being deferred will not now need to be made until 31 March 2021.

No application is required. The Tax Faculty has sought clarification from HMRC about payments made by direct debit. Returns should still be filed on time.

VAT

The deferral for VAT payments applies from 20 March 2020 until 30 June 2020. All VAT registered traders are eligible. This will generally mean the deferral of one quarter’s VAT: the payment due on 7 April, 7 May or 7 June 2020 or the monthly payments due on each of these dates. Update 27 March 2020: HMRC has clarified that the deferral does not apply to VAT MOSS payments. 

This is an automatic offer and no application is required. Businesses will not need to make a VAT payment during this period. The Tax Faculty has asked HMRC to confirm whether it will automatically suspend collection of direct debit payments of VAT during this period and is awaiting a response. If HMRC does not automatically suspend direct debit payments businesses will need to cancel their direct debit mandate and will need to remember to set it up again in due course. Agents cannot set up direct debit mandates on behalf of taxpayers.

Update 25 March 2020: HMRC has confirmed that businesses will need to cancel their direct debits. Businesses that have a direct debit mandate in place to pay their VAT and wish to defer payment will need to contact their bank to cancel that mandate. This needs to be done before the direct debit is due to be collected.

Taxpayers have until the end of the 2020/21 tax year to pay any liabilities that accumulate during the deferral period. Businesses will also need to remember to reinstate their direct debit mandate once the deferral is over and to make arrangements to pay the accumulated VAT by the end of the 2020/21 tax year.

VAT refunds and reclaims will be paid by the government as normal.

Businesses should continue to file their VAT returns by the due date.

Income tax

The deferral for income tax self assessment applies to the second payment on account for 2019/20 due on 31 July 2020 which is deferred until 31 January 2021.

Eligibility is limited to the self-employed ie, the deferral does not apply to those that are in self assessment but are not self-employed. The Tax Faculty has sought clarification from HMRC but our current understanding is that the deferral applies to any taxpayer who was self-employed in the 2018/19 tax year on which the payment on account is based. Update 26 March 2020: Any self asssessment taxpayer will be able to defer their payment, not just the self-employed. See latest news item.

This is an automatic offer and no application is required. Very few taxpayers pay their self assessment liabilities by direct debit because the system requires a separate direct debit mandate to set up for each individual payment. Any taxpayer that qualifies for the deferral and has already set up a direct debit mandate for the payment on account due on 31 July 2020 should consider cancelling it.

Self assessment returns should still be filed by their due date and it may be advantageous to file the 2019/20 return as soon as possible after 5 April 2020. This might facilitate planning for the tax payment due in January 2021 and perhaps crystallise any refund due, including as a result of any loss relief available.

No penalties or interest for late payment will be charged in the deferral period.

Further support from ICAEW on the coronavirus outbreak

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