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Covid-19 – Deferred VAT and cancelling your VAT number

In the current difficult trading conditions, many struggling businesses are considering cancelling their VAT registration or may have already done so. There are issues to be aware of though if the business has previously deferred VAT payable up to 30 June 2020 under the Government’s Covid program to ease VAT cashflow.

HM Revenue & Customs (HMRC) have confirmed that the existing procedure for cancelling your VAT number will continue for all business regardless of whether they have outstanding deferred VAT or not. The deferred VAT remains deferred until 31 March 2021. Businesses seeking to cancel their VAT number should still be able to use the extended 11 month payment plan provided they have already opted-in to the extended payments. This is also available if a business has an existing Time to Pay arrangement and it may also be possible to agree a bespoke payment arrangement to pay off the deferred VAT itself, but this would require discussions with HMRC.

It is important to note that cancelling your VAT number does not mean that the liability to pay the deferred VAT is cancelled. The deferred VAT remains payable by the business as a debt due to the Crown and HMRC will be seeking to collect the debt. Care will be needed if the business is subsequently liquidated or wound-up as HMRC could attempt to collect the debt from the directors personally if they take the view that the business was deliberately wound-up to avoid paying the VAT.

One other implication of the deferred VAT program is that if a business with deferred VAT joins a VAT group, HMRC have confirmed that the liability to pay the deferred VAT remains with the business and does not transfer to the group.

Would you like to know more?

If you would like to discuss any of the above guidance or have other queries about how you can make the right decisions for the future of your business and your income, please contact your usual Blick Rothenberg contact or Simon Newark, whose details are to the right.

You can also visit our Coronavirus – Practical Guidance for businesses today Hub for our latest insights and sign up here to receive important Practical Guidance updates delivered directly to your inbox.