When the Chancellor announced changes to the Tax Deferral Scheme on the 24th September, many business owners breathed a sigh of relief. With more time to pay and smaller monthly payments, the scheme aims to support businesses get back on their feet. However, with any scheme of this nature, there are positives and negatives, and it is vital that any business that has deferred their VAT payments to date understands the scheme, and what it means to them before forging ahead.


The Advantages Of The Scheme

The apparent benefit to engaging with this scheme is that businesses who have suffered because of COVID-19 can reduce their outgoings and enjoy an improved cash flow. This scheme is open to all UK VAT registered businesses that opt into the scheme when the system goes live in early 2021.


Initially, this scheme offered a deferred payment until the end of March 2021, but under the new guidelines, businesses are now able to smaller repayments over a longer time; essentially 11 equal repayments during the new timescale as laid out by the Chancellor in his Winter Economy Plan.


Even better is the fact that these repayments are being offered as interest-free. Any business that opts into this scheme will now have until March 2022 to pay all monies owed. However, the scheme is flexible, and you can pay larger amounts pay off the bill sooner, as long as there are no outstanding monies after the end of March 2022.


What About The Disadvantages?

As with any scheme, there are always disadvantages that need to be considered. In this case, the main issue is that if you prolong your repayments, you will obviously be in debt to the government for longer. and the ongoing repayments will impact your monthly business results.


These may not seem like issues that are too concerning, but it is essential that any business decision that is taken considers the full impact of what is to come because of it. As with any form of debt, the sooner you can pay it off, the better.

The Verdict

The business community has largely welcomed the VAT changes as an effort to provide support during these times of economic hardship. Many businesses are looking to reduce their monthly outgoings in a bid to make it through the tough times ahead, and a VAT deferral with zero interest is a sensible way to do that.

When it comes down to it, if your business can afford to pay the bill in full, or sooner than the deadline, then it makes absolute sense to do this so that progress can be made, and income can remain within the business.


If, however, your business is teetering and needs to maintain as much of a bank balance as possible, then this scheme is a simple and effective way of achieving this. The VAT changes may not save every business, but they are a worthwhile effort that will support many businesses in their time of need.