For many UK firms, this is fantastic news. Chancellor Rishi Sunak offered an extension for firms who postponed their VAT because of the COVID-19 epidemic in a long-awaited update. When the virus originally caused lockdowns and the furlough plan, the government devised ways to alleviate some of the financial stress, including allowing firms to postpone VAT until March 2021.
The Chancellor has now created an extension that will allow impacted organizations and people to extend the payback of that VAT between March 2021 and 2022, in a move that reflects the problems still affecting thousands of businesses and sole traders in the UK.
The VAT deferral scheme in the UK was the first of its kind:
implemented, all VAT-registered firms were given the option of postponing payments, resulting in more than half a million enterprises deferring over £30 billion in VAT payments.
The scheme applied to VAT payable between March 20 and June 30, 2020, with firms having until March 31, 2021, to pay. Under the scheme, HMRC also waived interest and penalties for any delayed VAT payments. The initial responses were always in response to the start of the pandemic’s impacts.
However, it has long been assumed that further assistance will be necessary to help many firms cope with the financial consequences of COVID-19.
Thousands of firms were able to survive temporarily thanks to the initial VAT deferral plan, but getting out of COVID-19 was never going to be simple or quick. For many businesses, keeping cash flowing and personnel on the books has been a significant challenge. The deadline for paying delayed VAT in March 2021 loomed ever closer, and this recent announcement will provide a sigh of relief to company owners across the country.
How will the new VAT deferral extension operate?
It is in everyone’s best interests to keep as many jobs as possible during the epidemic, and this is the latest in a series of reforms aimed at assisting businesses in staying afloat. Delaying repayments now is also intended to help firms get through the crisis in better condition.
Rather than having to pay all delayed VAT by March 2021, the Chancellor has decided to enable impacted firms to refund the sum over twelve months. Essentially, you will divide the amount into monthly installments to spread the impact. That means if you have a VAT debt of £55,000 by March of next year, you will have to pay $5,000 over eleven months.
How to Enroll in the Extended VAT Deferral Scheme?
If your company is having trouble paying delayed VAT for March and June this year by March 2021, consulting with an expert accountant about enrolling in the plan may be able to assist you to handle the problem. Businesses that want to register must opt-in, according to the government, although the method for doing so has yet to be released. Regardless of whether the registration procedure is delayed, it is a smart idea to start arranging for those repayments immediately.
If you choose and can make delayed payments by March 2021, you will need to make sure direct debits are restored promptly, but otherwise, you will not have to do anything. When payments are due, they will be deducted automatically.
Have you missed the deadline for canceling HMRC direct debits?
If you did, the good news is that you are not alone, and the government is giving a path back to harmed companies. HMRC gave VAT-registered businesses the option of deferring VAT payments until March 2021 at the end of March this year. Even though many companies took advantage of the lifeline, many more did not terminate their direct debit contracts promptly.
Because HMRC lacks a way to terminate its collection procedure, numerous payments were collected from firms that wanted to participate in the deferral plan. If you are affected, you have two options for getting a refund and then deferring the payment as intended while taking advantage of the new safeguards.
- Make a direct claim to HMRC for a VAT refund. If you did not stop your direct debit in time, you can request a refund through the Coronavirus hotline. Before you apply, make sure your bank information is up to current with HMRC, and keep in mind that the procedure might take up to three weeks.
- Make a claim with your bank for Direct Debit indemnification. This technique will most likely be faster if your cash flow position is less than perfect, but you should first call your bank to examine their unique policy needs. Direct Debit payers who wish to obtain reimbursement under the Direct Debit Guarantee can use indemnity claims. When a Direct Debit is taken in mistake, the bank must act quickly to rectify the issue.
Creating the most of your VAT deferral period:
While there is no silver bullet for the economic harm caused by COVID-19 – and some firms will fail – the expansion of the VAT deferral scheme is a good move.
Planning is the key to enhancing your chances of survival during a pandemic. The VAT deferral plan, when used in conjunction with proper forecasting and cash flow management, may help firms weather the virus’s storm and emerge in reasonable form.
The extension is not intended to allow businesses to delay extra VAT, but it may give you some time – and business owners who make good use of that time will enjoy the benefits.
We are here to support you:
With forecasting, we help businesses make the most of their cash flow at CBM Accounting. We can also help you with VAT and make sure you are not overpaying. If you would like to learn more about how CBM Accounting is assisting companies during the COVID-19 epidemic, please contact CBM Accounting.