One of the lifelines offered by the government in response to Covid-19 was VAT payment deferrals. All UK VAT registered businesses have the option to defer their VAT payments that were due between the 20th March and 30th June 2020 until the 31st of March 2021.
At the time of this announcement, it seemed like a huge lifeline being thrown to businesses that were struggling to trade. As we are now exiting this period and support for businesses is being gently withdrawn, is it such a good idea?
Every business needs to look at their situation individually but one of the biggest considerations is your VAT period and trading patterns.
For example if your VAT period was December, January, February and you are a retailer you may find this is one of your biggest quarters of the year due to high sales volumes for Christmas and low purchases in January and February for the quieter period. If you continue to defer this payment until March 2021 then you may also be juggling another large quarter payment. Effectively doubling your VAT bill. If this is the situation then you need to assess how viable it is to defer. In this situation you need to be forward thinking and assess the affordability of meeting this payment ideally before you enter your final quarter. Taking full advantage of any unexpected smaller liabilities to balance the payments.
However, if he period of deferral was your quietest quarter your options are more flexible. The deferral will give you more time to build capital and meet other needs of your business as lock-down is lifted. Caution needs to be taken still as we are moving into an unprecedented period and a possible recession. The last thing any business needs is mounting tax liabilities hanging over them during an economic struggle.
Ideally, if you have the capital to pay the liabilities, then try and clear them before you hit the last quarter of the year. Small manageable payments can be made instead of the large sum, relieving the pressure slightly on your business. Its important that any business considers these liabilities in their business plan for the next 12 months and does not just ignore it until its due. It is not a grant it’s a payment break.
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Michelle
MJ Baker Accountancy
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