VAT Deferral Scheme: What It Is and How It Works
The Chancellor introduced a VAT deferral scheme to support businesses struggling with cash flow due to the effects of Covid-19. Announced in April 2020 and updated on 24 September 2020, the scheme allows VAT-registered businesses to defer VAT payments due between 20 March 2020 and 30 June 2020 until 31 March 2021. This deferral primarily affects VAT periods ending in February, March, and May 2020.
 
How to Use the VAT Deferral Scheme
You don’t need to formally apply for the scheme if you plan to pay your deferred VAT by 31 March 2021. Simply withhold your payment, but ensure that you:

• Cancel any direct debits, as it’s unlikely you’ll receive a refund for unintended payments.

• File your VAT returns as usual.

• Pay VAT in full on amounts due after 30 June 2020.

You must settle your deferred VAT by 31 March 2021, although you can make partial payments toward the balance before then.
 
What If You Can’t Pay by 31 March 2021?
On 24 September 2020, the Chancellor introduced an option for businesses to spread their deferred VAT payments over a longer period, up until March 2022, interest-free.
To take advantage of this extended payment period, you must opt into the scheme and arrange a payment plan with HMRC. Contact HMRC at 0300 200 3835 to discuss your options and set up an extended payment schedule.
 
Interest and Penalties
To avoid issues, you must continue submitting your VAT returns as usual. Failure to do so may result in an assessment from HMRC and could disqualify you from the deferral scheme.
HMRC will not charge interest or penalties on deferred VAT as long as it is paid by 31 March 2021. However, if you need more time, you must contact HMRC to arrange a payment plan to avoid additional charges.