New penalty scheme for deferred VAT payments

A new penalty regime has been set up for non-payment of VAT which has been deferred under the COVID-19 deferred VAT scheme

According to the government, over half a million businesses deferred £34 billion in VAT payments due between March and June 2020 under the VAT Payment Deferral Scheme. Businesses had until 31 March 2021 to pay this deferred VAT or, if they could not afford to do so, they could go online from 23 February to set up a new payment scheme and pay by monthly instalments to spread the cost.

A penalty may be charged where a business did not take steps to pay its deferred VAT in full, or failed to set up an arrangement with HMRC to pay by the deadline of 30 June 2021.

The new penalty was established in Finance Act 2021 and is based on the amount of unpaid deferred VAT.

The penalty is 5% of the deferred VAT that is unpaid when the penalty is assessed.

Relief

Despite the new penalty, HMRC remains open for negotiations over payments to help businesses manage the impact of the pandemic.

Businesses can make an arrangement to pay either by joining the VAT deferral new payment scheme or by contacting HMRC to agree extra help to pay.

If a business receives a penalty assessment, it has 30 days to make settle the outstanding VAT charge.

Appeals

An appeal can be made against a penalty where the business has a reasonable excuse for late or non-payment.

Businesses can also request a statutory review, so that their case is considered by a different person at HMRC to the one who was involved in the original decision. 

In either case, the original penalty decision could be upheld, amended or cancelled.

Where an appeal or statutory review does not have a successful outcome for the business, appeals can then be taken to the First Tier Tribunal.

More help

If you are experiencing issues with being able to pay deferred VAT or there are errors on VAT returns submitted that need correction, please contact your usual Bishop Fleming advisor.

Other government measures already in place to support businesses and workers during the coronavirus emergency can be found in our Business after COVID-19: Transition Knowledge Hub.