New payment option for VAT

September 4th 2023

If a business can’t pay the VAT it owes on time, a new time-to-pay option could provide some breathing space. Who can take advantage and how can it be applied for?  Naomi Swan explains.

If a business cannot pay its VAT on time and owes less than £20,000, it is now possible to set up a payment plan online with HMRC if they agree to pay the full amount owed within six months. These plans are usually described as time-to-pay arrangements by HMRC.

The measure is part of HMRC’s wider programme to digitise tax reporting and payments, reducing the pressure on HMRC’s advisors. The message from HMRC is clear, you must solve most future VAT issues online rather than by phone. Don’t waste time calling HMRC’s helpline numbers if there’s an online solution available instead.

The online service is not available to a business which uses either the annual or cash accounting schemes or if it is a large business that makes VAT payments on account.

A business can set up a payment plan online via the Government Gateway if the business has filed its latest VAT return. They must apply 28 days of the payment deadline date for the return in question. The business must not have any other time-to-pay arrangements in place for other taxes.

If the business is not eligible to use the new service, it must call HMRC’s Payment Support Service in the usual way.

However, the business will still be charged interest on any VAT paid after the due payment date. It is sensible to pay all tax, or as much as possible, on time, because the interest rate charged by HMRC has significantly increased in recent months.

A business can use the new online option to agree a time-to-pay arrangement if it owes less than £20,000 and doesn’t use the annual or cash accounting schemes. It should apply online through Government Gateway account within 28 days of the due payment date and must agree to settle the debt within six months.

For other related VAT queries you may have please contact the JRW team.

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