Tax and compliance
What is VAT deferral, and what can a business do now?
An old article about VAT deferral can sound like an open government facility. It is important to separate the historical COVID arrangement from the options a business can explore for a current tax bill.
Quick answer
The COVID VAT-deferral new payment scheme is closed. If you cannot pay a current tax bill, HMRC may consider an affordable payment arrangement, but it is not automatic or debt forgiveness. Contact HMRC through its official route and keep filing obligations separate from payment discussions.
Key points
- Do not rely on historic deferral deadlines as current relief.
- A payment arrangement must be agreed; it is not permission to stop paying.
- Forecast the tax bill separately from ordinary working capital.
The historical VAT-deferral scheme is not open
HMRC’s archived guidance concerns payments due between 20 March and 30 June 2020. The later online new payment scheme closed in 2021. Those dates do not create a general right to postpone a VAT bill today.
Be cautious when a website or sales message describes ‘VAT deferral’ without naming the specific arrangement and eligibility rules. A commercial loan marketed for VAT is borrowing from a lender, not an HMRC deferral or a reduction in the tax owed.
Explore the current HMRC route early
HMRC says you may be able to set up a payment plan if you cannot pay a tax bill in full. It assesses affordability and can require payment in full if an arrangement cannot be agreed. Current online eligibility, interest and penalty treatment should be checked directly.
Prepare the amount owed, why the shortfall occurred, your cash position and an affordable proposal. Do not promise instalments based only on optimistic sales. Continue meeting filing responsibilities and ask HMRC or your adviser how the arrangement affects interest and penalties.
Find out whether the problem is timing or an operating loss
Put VAT payments into a forecast alongside payroll, suppliers and finance repayments. If sales are recorded net of VAT but bank receipts are gross, keep the treatment consistent. Money collected for an expected tax liability should not be mistaken for spare cash.
For example, a £6,000 tax bill against £4,000 of genuinely available cash creates a £2,000 gap before other commitments. If a confirmed £3,000 receipt is delayed, the issue differs from a business losing £2,000 every month. The response must fit the cause.
Compare borrowing carefully rather than assuming it is relief
A business loan used to pay tax replaces one cash obligation with another and may add fees, interest, security or a guarantee. Check permitted use and compare the entire repayment schedule with any alternative HMRC arrangement.
If essential bills and tax remain unaffordable, seek qualified advice promptly. Repeatedly using cards or fast business loans for tax can conceal continuing distress. A tax professional can also check whether accounting methods or errors are affecting the position.
Keep filing responsibilities separate from a payment problem
A shortage of cash does not itself remove a return-filing obligation. Check the applicable deadline, submit accurate information through the proper route and obtain advice if records are incomplete or a return needs correction. A payment discussion and a correction to the underlying tax amount are different processes.
Keep a record of HMRC communications and any arrangement actually agreed. Do not rely on an informal assumption that someone will call back or that an online request has been accepted. Ask what happens if circumstances change or an instalment is missed. Interest and penalties depend on the relevant rules and facts, so avoid treating a payment plan as a blanket promise that neither can apply.
Prepare an affordable payment-plan proposal
Show current bank cash, essential outgoings, expected receipts and existing commitments. Use realistic collection dates and explain the reason for the shortfall. A proposal should leave enough for the business to trade lawfully and meet ongoing obligations, rather than simply offering the largest instalment that appears persuasive.
Stress-test the plan against a delayed customer payment. If that immediately breaks the schedule, discuss the uncertainty rather than promising what cannot be delivered. HMRC considers the circumstances and affordability; there is no universal approval available through this article. An accountant can help ensure the figures reconcile and that the plan does not overlook the next tax liability building up while the old bill is being paid.
Prevent the next bill from becoming the next emergency
Review how tax is provided for during ordinary trading. A separate account or internal reserve can make commitments clearer, but the correct amount depends on the business’s actual position. Do not use a simple percentage without checking how sales, purchases and accounting treatment affect the liability.
Reconcile regularly with the accountant or bookkeeper and update the cash forecast after significant changes. A balance sitting in the bank may include customer deposits, tax provisions or other committed funds. Identify what is genuinely available before spending or distributing it. The objective is to make the next payment visible early, not merely move money between accounts without improving the underlying plan.
Recognise a commercial tax-finance offer
A lender describing a product as VAT funding is offering credit under its own agreement, not administering historic HMRC relief unless that is specifically established. Check the borrower, permitted use, net advance, total payments, fees and any personal guarantee. Verify the firm and payment destination independently.
Compare the offered schedule with a realistic forecast and any HMRC option actually available to you. Do not pay an upfront fee because a message promises guaranteed tax relief or instant approval. If the business cannot meet current debts without repeated refinancing, seek qualified advice about the wider position. Changing the creditor does not make the underlying obligation disappear or prove that trading is sustainable.
Common questions
- Does VAT deferral mean I owe less tax?
- No. Deferring or arranging payment changes timing, not the underlying liability, unless a separate lawful adjustment applies.
- Can I simply stop my VAT direct debit?
- Do not treat cancelling a payment instruction as an agreed arrangement. Contact HMRC through its official route and obtain advice about the consequences.
Sources
Sources were checked on 16 October 2026. A source check confirms what these publications said on that date; it is not a financial review of any product.
- VAT deferred due to coronavirus: scheme closed — HM Revenue & Customs
- If you cannot pay your tax bill on time — HM Revenue & Customs
- How to create a cash flow forecast — British Business Bank