The UK Government has announced that, in order to assist businesses dealing with the effects of the COVID-19 pandemic, no UK business would be required to pay VAT due between 30 March 2020 and 30 June 2020. Instead, the sums that would have fallen to be paid this quarter will not become due until the end of the 2020/21 tax year. The announcement stated that, although optional, the deferral is  automatic and did not require further action from businesses in order to take advantage of it.

HMRC has now issued further important clarification. Businesses should be aware that:

  1. They are still required to complete their quarterly VAT return as usual;
  2. If they pay their VAT by direct debit and wish to take advantage of the VAT deferral, they will need to suspend or cancel that direct debit. HMRC cannot suspend or cancel the business’s direct debit mandate. Therefore, unless the direct debit is suspended or cancelled by the business, HMRC will take payment from the business equal to the amount stated in the latest VAT return. They would therefore not benefit from the VAT deferral;
  3. For businesses who’s VAT return shows that they are due a refund from HMRC, the payment will be paid by HMRC as usual and will not be deferred;
  4. The deferral is just that- a deferral. The VAT for that period will still be payable, albeit at a much later date.
  5. If a business decides to suspend or cancel its direct debit, it should ensure that it reactivates it in plenty of time prior to the next VAT payment falling due. Businesses should be aware that this reactivation can be reasonably time consuming, so businesses should ensure the process is started in good time.

However, UK VAT registered businesses should note that the deferral does not cover import VAT or payments of VAT due on sales of digital service to consumers in the European Union (under the VAT Mini-One-Stop-Shop (MOSS)).