Cancel direct debits to enjoy VAT deferral

The issue

Under the government’s proposals VAT payments due before 30 June 2020 will not now need to be made until 31 March 2021. No application is required but direct debit mandates need to be cancelled. Returns should still be filed on time. No penalties or interest for late payment will be charged in the deferral period.

The detail

The deferral for VAT payments applies from 20 March 2020 until 30 June 2020 and all UK businesses are eligible. Generally this will 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. This is an automatic offer and no application is required and so businesses will not need to make a VAT payment during this period. However HMRC has confirmed that businesses will need to cancel their direct debits – which is a potential trap. Therefore 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.

Taxpayers will then have until 31 March 2021 to pay any liabilities that accumulate during the deferral period and will need to make arrangements to pay this accumulated VAT. VAT refunds and reclaims will be paid by HMRC as normal and there are no concessions relating to the filing of VAT returns.

Forbes Dawson view

For many businesses this is in substance a ‘quick fire Government loan’. Given that no penalties or interest will be charged in the deferral period there seems little downside in taking advantage of this although clearly businesses need to remember for cashflow purposes that payment does need to be made on 31 March 2021. The main way of losing out on this opportunity seems to be if a VAT payment is inadvertently made or if cancellation of the direct debit is overlooked. Also, as bank systems may be more prone to error, extra care should be taken to ensure beyond doubt that the direct debit has been cancelled.

 

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