Businesses told to reinstate direct debits as VAT deferral scheme comes to an end

Businesses who deferred VAT liabilities throughout the coronavirus pandemic should now reinstate direct debits as the deferral scheme comes to a close, experts have said.

The warning comes as the VAT Payment Deferral Period ends on 30 June 2020.

Commenting on the closure of the scheme, HM Revenue & Customs (HMRC) reminded businesses to set up cancelled direct debits in enough time for the office to take payments.

“Any VAT payments you have deferred between 20 March and 30 June should be paid in full on or before 31 March 2021. You can make additional payments with subsequent returns,” said the office.

It added that any business unable to pay the VAT due should contact HMRC “as soon as possible” to agree a Time to Pay arrangement.

Under the deferral scheme, UK VAT registered businesses could defer payments between 20 March and 30 June 2020, without incurring interest or penalties for non-compliance. The outstanding liabilities do not have to be repaid until 31 March 2021.

Businesses choosing this option were told to cancel their Direct Debit without informing HMRC.

According to the Institute of Chartered Accountants in England and Wales (ICAEW), any outstanding returns should be filed and three working days should be allowed to elapse before reinstating the direct debit mandate, in time for payments in July onwards.

“ICAEW’s Tax Faculty understands that HMRC will issue guidance on the end of the VAT deferral period very soon but, to be effective, direct debit mandates usually need to be set up three working days before a VAT return is filed”, said the regulator.

It added: “Agents cannot set up direct debit mandates on behalf of clients; the business needs to set up the mandate through their business tax account.”

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