Last updated: 14 October 2026
What was the VAT deferral scheme, and what help is available now?
The VAT deferral scheme let UK businesses delay VAT payments due between 20 March and 30 June 2020, during the first Covid-19 lockdown, without penalties or interest. Businesses could then pay the deferred VAT in full by 31 March 2021 or spread it in interest-free instalments through the VAT Deferral New Payment Scheme, which closed in 2021. The scheme is no longer available. Today, businesses that can’t pay VAT on time can ask HMRC for a Time to Pay arrangement instead.
How the 2020 scheme worked
| Feature | Detail |
| Payments covered | VAT due between 20 March and 30 June 2020 |
| Application | Automatic: businesses simply didn’t pay |
| Original repayment deadline | 31 March 2021 |
| New Payment Scheme | Up to 11 interest-free monthly instalments, joined by June 2021 |
| Penalty for not joining or paying | 5% of the deferred VAT, or interest |
Returns still had to be filed on time.
What the advantage was
The main advantage was cash flow. Businesses kept money in the business during a period when many had little or no income, without interest or penalties. Many used it alongside furlough and grants. Others chose not to defer because they had the cash and wanted to avoid a later bill.
What to do now if you can’t pay VAT
- File your VAT return on time, even if you can’t pay
2. Contact HMRC as soon as possible, ideally before the due date
3. Set up a Time to Pay arrangement online if you owe £100,000 or less and meet the conditions
4. For larger debts, or if you can’t use the online service, call HMRC’s Payment Support Service
5. Keep to the agreed payments, because missed payments can cancel the arrangement
Interest is charged on Time to Pay arrangements, and late payment penalties may be limited if you agree a plan early. HMRC will ask about your income, spending and what you can afford before agreeing a plan.
Example
A restaurant owes £24,000 VAT for its December quarter after a quiet winter. It files on time and sets up an online payment plan before day 15. By agreeing the plan early, it can avoid the first late payment penalty, though interest is charged. A 12-month plan works out at about £2,000 a month plus interest.
Accounting for deferred VAT in old accounts
If you’re reviewing accounts from 2020/21, deferred VAT should have been shown as a creditor until paid. Errors here can affect corporation tax computations only indirectly, because VAT is not usually a business expense.
Other Covid-era VAT measures
The deferral sat alongside a temporary 5% rate for hospitality, accommodation and attractions from July 2020, rising to 12.5% in October 2021 and back to 20% from April 2022. Those measures have also ended.
Frequently asked questions
Can I still defer VAT under the Covid scheme?
No, it closed in 2021.
Did businesses pay interest on deferred VAT?
No, if they paid on time or joined the New Payment Scheme.
Is Time to Pay interest-free?
No, interest is charged.
Can HMRC refuse a payment plan?
Yes, for example if returns are missing.
Related: struggling to pay VAT and VAT late filing penalties.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with spreading VAT payments. See our VAT accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
