The option to defer VAT payments during coronavirus has come to an end and businesses can no longer defer VAT.
Payments on account arrangements
‘Payments on account’ are advance payments towards your VAT bill.
HM Revenue and Customs will tell you to make payments on account if you send VAT returns quarterly and you owe more than £2.3 million in any period of 12 months or less.
The £2.3 million threshold includes VAT on imports and moving goods into and out of excise warehouses.
How we work out your ‘payments on account’
HM Revenue and Customs will work out your payments based on your annual VAT liability in the period that you go over the threshold. They will divide your annual VAT liability in that period by 24 to arrive at an instalment amount. If you’ve been in business for less than 12 months, they will work out the payments as a proportion. They do not include the VAT on imports and moving goods into and out of excise warehouses. They may change the amount of your payments if your total VAT liability goes up or down by 20% or more.
Businesses registered in divisions
If you’ve registered your business in the names of its divisions, HM Revenue and Customs will look at each division as a separate business for payments on account. They will use the VAT liability of each division to decide:
- whether it should make payments on account
- the amount of each payment on account
Businesses registered as part of a VAT group
HM Revenue and Customs will look at the VAT liability of the whole group to decide:
- whether it should make payments on account
- the amount of each payment on account
A VAT group will have a representative member that’s responsible for making payments on account for the group. If HM Revenue and Customs do not get the payments, all members of the group are jointly and severally responsible for payments on account (this means the group members are responsible together and individually responsible for the group payments).
Payments on account start date and annual cycle
The payments on account cycle starts in the first quarter after you go over the £2.3 million threshold. Your payments will stay the same until the start of the next annual cycle. The annual cycle begins in April, May or June depending on which VAT return ‘stagger’ you’re on. We base the amount of your payments during the annual cycle on your liability in the period known as the ‘reference year’.
This table sets out the reference year for each return stagger:
Annual cycle begins
March, June, September, December
Year ending September
April of following year
April, July, October, January
Year ending October
May of following year
May, August, November, February
Year ending November
June of following year
So, if you’re on stagger 1, your VAT liability for the reference year ending September 2018 will decide the amount of each payment on account from April 2019 until March 2020.
Payment due dates
HM Revenue and Customs will write to you with a payment schedule telling you how much to pay and all your payment deadlines. Make sure cleared funds are in HMRC’s bank account by the deadline, or you may get a surcharge. If the deadline falls on a weekend or bank holiday, your payment must clear HMRC’s bank account on the last working day before it, unless you pay by Faster Payments.
Due dates for payments on account
The due dates for payments on account are the last working day of the second and third months of every VAT quarter no matter what your period end date is. The 7 day extension for paying electronically does not apply to payments on account.
Due dates for quarterly balancing payments
Your balancing payments are due with your VAT return and must clear our bank account by the last working day of the month if you’ve standard period end dates.
File your quarterly returns online as normal. But do not adjust any figures on your return to record payments on account that you’ve already made. Instead pay HMRC the net amount shown on your return less any payments on account you’ve already paid in that accounting period.
HM Revenue and Customs will make any repayments that we owe you under the normal rules. If your return is a repayment return, HM Revenue and Customs will repay the payments on account you’ve paid in the quarter.
Non-standard quarterly balancing payments
If you’ve agreed with HM Revenue and Customs to use non-standard period end dates for your returns, then your payments must clear HM Revenue and Custom’s bank account by the due date for those returns.
How to pay
You must pay all your payments by one of these methods:
- online or telephone banking, CHAPS, Bacs
- by debit or corporate credit card online
- at your bank or building society
- standing order
You cannot make payments on account or balancing payments using the VAT Online Direct Debit service. You’ll need your 9-digit VAT registration number to make a payment (remove spaces between numbers).
If you do not make your payments on account or the balancing payment in full and on time HM Revenue and Customs will:
- take immediate action to recover the debt
- consider charging you a default surcharge
- consider transferring you from quarterly to monthly returns
Changes in your VAT liability
HM Revenue and Customs may adjust the amount of your payments on account if your total VAT liability goes up or down by 20% or more. They may also remove you from the arrangement if your total VAT liability falls below the threshold. If you want HM Revenue and Customs to look again at the amounts due or you think they should remove you from a payments on account arrangement, write to the payments on account team:
Payments on Account Team
Business, Tax and Customs, Liverpool
7th Floor, Regian House
You must not adjust your payments until HM Revenue and Customs tell you to in writing.
Lower payments on account
If your total VAT liability (not including the VAT on imports and moving goods into and out of excise warehouses) is or will be less than 80% of the liability we used to calculate your current payments, you can ask us to reduce them. This applies to either:
any completed year ending after the year that we’ve based current payments on (a backward look at your VAT liability)
any year that’s started but not yet ended (a forward look and you must include an estimate of future returns you’ll submit to make up the whole year)
In both cases, write to the payments on account team.
Tell us the reasons we should reduce your payments. If we’re satisfied, we’ll change your payments to show your reduced VAT liability.
Higher payments on account
We may increase your payments on account if the VAT liability for any year after the year we based our calculations on increases by 20% or more. We’ll tell you in writing about an increase in payments.
If we’ve increased your payments you can apply to have the payments reduced to show your current liability as long as you meet the conditions for a lower payment. We’ll use the year that we worked out your payments to decide if you meet these conditions.
Removal from a payments on account arrangement
If your VAT liability falls below £2.3 million in your reference year we’ll remove you from the arrangement 6 months later.
If your reference year ends in September, and your liability is below the threshold at that point, your last payment on account will be in the following March. But you must carry on making payments on account until then.
We’ll tell you the effective date of your withdrawal from your payments on account arrangement.
If your total VAT liability within any completed year ending after your reference year falls below £1.8 million, you can ask the payments on account team in writing to remove you from the arrangement.
Give all the reasons why we should remove you from the arrangement.
If your business applies to cancel your VAT registration for any reason, contact the payments on account team to find out how your ‘payments on account’ arrangement will continue.
Alternatives to payments on account
If making payments on account and submitting quarterly VAT returns does not suit your business you can choose to make VAT returns and payments monthly. To make the change to monthly returns you can either:
apply online to change your registration details
fill in form VAT 484 and send it to the address on the form
You might have to continue making monthly returns for at least one year.
If you submit monthly VAT returns you may be allowed up to 7 extra days to pay and submit your VAT return, as long as you use an electronic payment method. This is the only circumstance that a business in a payments on account arrangement can be given the extension to the due date for payment.
If you move back from monthly returns to quarterly returns, the 7 day extension will not apply and you must make payments on account from the first quarterly accounting period.
Actual monthly liability
Instead of paying the amounts we told you to, or moving to monthly returns, you can choose to pay the actual liability for the previous month without submitting a monthly VAT return.
For example, the payment due at the end of February will be the actual liability for January. This option may suit you if you have wide seasonal variations in turnover. But if you opt to pay the actual liability, you must do so for at least one year.
If you do opt to pay actual monthly liabilities but you’re in credit for any month, you:
will not get an immediate repayment but should bring the credit forward to the VAT return as normal
cannot net off the credit in one month against the liability for the next month to reduce the amount of payment
should consider switching to monthly returns if you’re often in credit and you want immediate repayments of credit
If you want to use actual monthly liability contact the payments on account team.
Removing the option to pay actual monthly liabilities
You must make accurate payments of your monthly liabilities. If we’re not satisfied that you are, we’ll tell you that you can no longer pay the actual monthly liability, and we may direct you to make monthly returns or go back to the payments on account we worked out for you.
If you disagree with our decision to remove the option to pay actual monthly liabilities you can either:
ask the payments on account team for a review in writing
appeal to an the tax tribunal within 30 days of the letter telling you our decision