How to defer your VAT

This post was last updated in April 2020

COVID-19 UPDATE:
On 20th March, Chancellor Rishi Sunak announced that all VAT payments will be deferred for the financial quarter beginning April 1st. That means that no UK business will have to pay VAT until the end of June 2020, and will have until the end of the financial year to repay any deferred bills. However, businesses still have the option to pay VAT as normal during this period, should they wish.

For more information about how to defer your VAT payments during the COVID-19 pandemic, head to the government’s website.

Believe it or not, HM Revenue and Customs is throwing entrepreneurs a bone and allowing them to defer their VAT payments. We catch up with tax expert Phil Salmon to find out more about this important, yet overlooked, initiative.

Last year’s Pre-Budget Report, made in the midst of an imploding economy, drew many negative headlines. Most media focused on the reduction of VAT to 15% and slammed it as a waste of time. However, perhaps more important for businesses was the decision to allow struggling companies to defer their VAT payments. Phil Salmon, director of VAT services at accountancy firm haysmacintyre, explains how your business can benefit:

When can VAT be deferred?
If you’re not able to meet a VAT payment that either has, or is about to, become due, you can contact the HM Revenue and Customs (HMRC) Business Payment Support Service. The service is not available if HMRC has already contacted you about an overdue payment, or if you have previously agreed to make payments by instalments. You’re not obliged to give a reason for not being able to pay your VAT bill, but HMRC is more likely to be sympathetic if you do. Good reasons could include the loss of a key client, unexpected expenditure, delayed payments from customers or difficulty in securing funding from banks.

How much can be deferred?
There is no indication that HMRC has set any minimum or maximum amounts. We have recently assisted one client in deferring a payment in excess of £1m.

How do I get started?
Call the service on 0845 302 1435. It is open from 8am to 8pm on weekdays, and between 8am and 4pm during the weekend. Set out the problem, and your proposal of how you think you can meet the payment. Be realistic, and consider future liabilities as well. For example, if you think you can pay your VAT return in three monthly instalments, bear in mind that at the end of the third month, you will have another VAT return to pay, so suggest six or seven monthly instalments instead. Try asking for more time than the very minimum you think you need, so you are less likely to default on the rescheduled payments. But don’t be greedy, as HMRC does seem to be genuinely trying to help here, and if the facility is abused, they could withdraw it.

How long does it take?
HMRC has said that, in most cases, it will make a decision in just 10 minutes. In more complex cases it will take longer, although no more than a couple of weeks. In one of the larger cases we dealt with there was an initial telephone call, after which HMRC said it would be in touch within four days. It duly came back and asked for further information, and on receipt of that said it would be in touch within a week. However, the business was told to work on the assumption that the proposal had been accepted unless it heard otherwise.

Are there any additional costs?
Interest will be charged, but the current rate is just 3.5%. Provided you have agreed to defer the payments, it will not count as a default, and the normal default surcharge will not be imposed.

Why haven’t I already heard about this?
Initially, it was somewhat overlooked, possibly because it was announced in the Pre-Budget Report at the same time as the VAT rate cut, which grabbed all the headlines. However, it was mentioned in a speech to the Confederation of British Industry by Lord Mandelson, who also said that up to half a billion pounds had been kept in the hands of business.