HMRC Warning on Deferred VAT

During the pandemic HMRC allowed VAT bills to be deferred. Many haven’t yet cleared the arrears. If this is you, what steps can you take to avoid a financial penalty?

In 2020, during the first lockdown, government authorised HMRC to offer VAT-registered businesses and other organisations the facility to defer VAT bills. The deferral period applied to VAT due between 20 March-30 June 2020. This deferral was separate to any other ‘time-to-pay’ arrangements with HMRC.

The deferred VAT could be settled all at once or by instalments. Either way, the deadline for full settlement was 31 March 2021 or penalties could apply. HMRC threw them a lifeline by allowing them to defer payment if they contacted them by 30 June 2021 to agree a repayment schedule.

If you still have deferred tax owing but agreed a time-to-pay schedule you stuck to, you’re safe from any further debt collection action or penalty for non-payment of the deferred VAT.

If you still owe some VAT deferred between March and June 2020 and haven’t agreed payment terms with HMRC, you now face a fine on top of the debt.

In December 2022, HMRC issued a warning to businesses that they will be charged a penalty equal to 5% of the deferred tax still outstanding. However, the tone of the warning was conciliatory. It gave no deadline for settlement. It simply stated anyone struggling to pay deferred VAT should contact them as soon as possible, to look at manageable payments for individual circumstances. The implication is that they might not charge the 5% penalty as long as you don’t delay contacting it and do agree terms to pay.

If you owe VAT you deferred in the first lockdown, you must now pay it or HMRC may charge a penalty equal to 5% of the amount owing. But if you contact HMRC without delay and agree payment terms it may forgo the penalty.

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For help with your VAT including advice on deferment, get in touch with our tax team on Let’s Talk.

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