Limited companies could face increased charges as VAT Deferral scheme ends

As the deadlines for registration to repay VAT in instalments have closed, businesses who delayed payments last year now face extra charges on top of the amount they already owe.

Joanne Harris, Technical Commercial Manager at SJD Accountancy, said: 

“When the pandemic started in 2020, the Government announced a number of measures designed to support businesses and one of these was the VAT deferral scheme, which allowed limited companies to delay their VAT payments falling between 20 March 2020 and 30 June 2020. In total, more than £33.5bn in VAT was deferred, highlighting the widespread uptake of the scheme for freelancers and contractors with a limited company set up, as well as larger businesses.

“To help businesses pay the money back this year, the ‘new payment scheme’ was introduced, which effectively offered businesses the chance to spread the repayment back over a number of months. However, individual companies had to register themselves for the scheme and the window slammed shut on 21 June. An extended deadline to agree more time to pay with HMRC was given until 30 June, but this deadline has now passed too, and any business that has missed both deadlines and has not already paid the money back in full, may now face a 5% surcharge on the amount owed from that period.

“This kind of penalty could come at exactly the wrong time for many company owners who are just starting to get their businesses back on track. It’s important people also understand that HMRC will continue to apply surcharges if the money is still not paid back, with further quarterly surcharges likely, and the possibility of these increasing to 10% and then 15%.

“Our advice to limited companies is to aim to pay this money off as soon as they can, but wherever that is not possible, contact HMRC to start a dialogue with them and agree on the next steps that work for your business. 

“Although these deadlines may have passed, HMRC are usually willing to help where they can, and addressing the issue with them is always the best approach. Visit VAT payments for more information.”