VAT warning – reminder for businesses to reinstate VAT direct debits

Date: June 17, 2020

As part of the Governments package of measures to assist businesses impacted by COVID-19, changes were implemented to VAT payments due between 20 March 2020 and 30 June 2020, to help businesses manage their cash flow.

UK VAT registered business with a VAT payment due between these dates were given the option to either defer the payment until a later date or pay the VAT due as normal. Interest or penalties on any amount deferred during this period is not being charged by HMRC. VAT returns are still required to be submitted to HMRC on time.

Deferral period coming to an end

At the time, businesses who choose to defer these payments were advised to cancel their direct debits, to avoid automatic collection. With this deferral period coming to an end on 30 June 2020, businesses should take action to reinstate these direct debit mandates, so they are in place in time for payments due in July 2020 onwards. This will also help to avoid any potential penalties for late payment.

Businesses should bear in mind that agents cannot set up direct debits on behalf of clients, this needs to be implemented through a clients’ business tax account.

Guidance on the end of the VAT deferral period is due to be issued by HMRC shortly. 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 the deferred VAT by 31 March 2021. Further guidance should be published by HMRC on the mechanism for collecting and paying this in due course.