Should you put off paying your VAT bill?
Just because you can put off your VAT bill doesn’t mean you should. It is a loan, not a cancellation of the debt.
Companies with a VAT payment due between 20 March and 30 June can defer the bill until 31 March 2021 as part of the government’s support package. In practice, that means you can defer what you owe from quarterly tax returns that were filed by 29 February, 29 March and 29 April, for which tax would normally be payable by 7 April, 7 May and 7 June respectively. Payments on account, annual accounting advance payments and monthly return payments are also eligible for deferral.
However, just because you can put off your bill doesn’t mean you should. This is a loan – an extension of the time you have to pay your VAT to help with short-term cash-flow problems – not a cancellation of the debt. And when the bill does finally fall due next March, you’ll also be expected to pay the VAT ordinarily due at that time. So it makes sense to pay now if you can.
Still, think carefully about your cash-flow expectations for the rest of this year, including costs such as bringing staff back from furlough and making workplace safety changes. It may be sensible to keep your VAT cash back to give yourself a safety net. You could take a Bounce Back Loan from the government scheme to cover the cost of your delayed liability. These are cost-free in the first year, so if you don’t end up needing the money for your VAT, you can repay the loan and be no worse off.
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David Prosser is a regular MoneyWeek columnist, writing on small business and entrepreneurship, as well as pensions and other forms of tax-efficient savings and investments. David has been a financial journalist for almost 30 years, specialising initially in personal finance, and then in broader business coverage. He has worked for national newspaper groups including The Financial Times, The Guardian and Observer, Express Newspapers and, most recently, The Independent, where he served for more than three years as business editor.
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