Deferred VAT: what it means now, and how to delay a VAT payment

'Deferred VAT' means paying VAT later than the date it fell due, and four different arrangements go by the name. Three are live: if you import goods you can postpone import VAT to your next VAT Return or move it to one monthly direct debit, and some lenders hold back the VAT on an asset you're financing. The fourth, the Covid-era deferral scheme, closed in 2021. If what you mean is that a VAT bill is due before your customers pay, that isn't a deferral at all: you ask HMRC for Time to Pay, and asking inside 15 days keeps the late payment penalty at nothing. The VAT doesn't go away, though. You just get longer to pay it.

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What deferred VAT means, and the four things people mean by it

A deferral is a later payment date, agreed in advance. It's a period of grace rather than a discount: you stay liable for the full amount of VAT, you just get longer to settle it. What changes between the four arrangements is who agrees to it, how long it buys you, and whether you have to ask.

Find your own situation in the first column.

The fourth row catches people out. If you're buying a van or machinery, the VAT on a hire purchase agreement is normally payable upfront, and some lenders hold it back so you can reclaim it from HMRC first. HMRC isn't involved, so the terms vary and you have to ask.

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The Covid-era VAT deferral scheme closed in 2021

HMRC's VAT deferral new payment scheme has closed, and nothing general has replaced it. It covered VAT that fell due between 20 March and 30 June 2020, and it remains the only time a UK company could delay a domestic VAT bill without agreeing it with HMRC first.

If your company deferred VAT then, there were three ways to settle it, and all three deadlines have passed: pay in full by 31 March 2021, join the online new payment scheme by 21 June 2021 to spread the VAT in interest-free instalments, or agree an arrangement with HMRC by 30 June 2021. Anything still unpaid after 30 June 2021 is treated as debt, and HMRC can charge a penalty of 5% of the deferred VAT that's unpaid when the penalty is assessed.

That history matters mainly because of what you'll read elsewhere. VAT deferred due to coronavirus on GOV.UK now opens by saying the scheme has closed, but plenty of guides written in 2021 still describe it in the present tense. If a page offers to help you apply, check its date.

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Deferred VAT vs postponed VAT on imports

Both delay when import VAT leaves your account, and they answer different questions rather than competing. Deferring moves the payment date: you still pay the VAT, just later and in one monthly lump. Postponing removes the upfront payment altogether, because you declare the VAT and reclaim it on the same return. Deferring also covers Customs Duty and excise duties; postponing only ever covers the VAT.

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Postponed VAT accounting: declare and reclaim on the same return

With postponed VAT accounting you declare and recover import VAT on the same VAT Return, rather than paying it upfront when the goods are imported and recovering it later. You need no approval to use it, and there's no guarantee and no monthly payment. You choose it when you complete the import declaration, and you can't change that choice once the declaration has gone in.

You put the VAT due on your imports in box 1, reclaim the same VAT in box 4, and put the value of the goods, without the VAT, in box 7. The monthly statement you need for that is usually available by the 10th working day of the month, and you can only get at it for six months, so download a copy each time. If a return leaves you with more VAT to recover than to pay, you reclaim it on your next return.

One thing to watch if someone else handles your imports: since 9 June 2025 a freight forwarder, customs agent, or courier needs your written confirmation before making the declaration. HMRC confirmed in August 2021 that the scheme is permanent, so it's safe to build into how you buy. The detail is in Check when you can account for import VAT on your VAT Return on GOV.UK.

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A duty deferment account: one direct debit on the 16th

A duty deferment account lets you make one payment a month by direct debit instead of paying for each consignment as it arrives, and it can cover Customs Duty, excise duties, and import VAT.

Under the Customs Declaration Service, HMRC takes the money on the 16th of the following month, or the next working day if the 16th isn't one. HMRC describes that as deferring duties and import VAT for between two and six weeks, an average of 30 days credit. Your statement lands three working days before the direct debit goes.

The guarantee is what decides whether it's worth it. You need one from a UK financial institution regulated by the Prudential Regulation Authority, unless you qualify for a waiver: one level covers deferring up to £10,000 a month, and a higher level covers a specified amount above that. A waiver needs no serious or repeated infringements of customs or tax rules in the past three years, and positive net assets excluding goodwill. The tests are in Check if you can get a guarantee waiver for a duty deferment account on GOV.UK.

So if import VAT is your only concern, you may not need an account at all. Postponed VAT accounting handles the VAT with no guarantee and no monthly payment, and a deferment account earns its keep when there's duty to defer as well.

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How to set up a duty deferment account

You apply through an HMRC online service, and HMRC aims to decide within 30 working days. The order matters, because the account isn't live until the direct debit is in place.

1. Check that your company is established in the UK for customs purposes.
2. Get your Economic Operators Registration and Identification number if you don't have one.
3. Apply online, with your company number, VAT number, directors' details, and an estimate of the duty and VAT you'll defer each month.
4. Apply for a guarantee waiver at the same time, if you think you'll qualify.
5. Arrange a guarantee from a regulated UK financial institution if you won't, but only once HMRC asks for one.
6. Use the deferment approval number HMRC sends you to complete your direct debit instruction, then check your statements in the Customs Declaration Service.

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If you can't pay a VAT bill on time, ask HMRC for Time to Pay

Contact HMRC and ask for a Time to Pay arrangement, which spreads the VAT you owe into monthly instalments. There's no fixed limit on how long a plan can run: HMRC works it out from what you owe and what you can afford each month.

Ask as early as you can, and ideally before the deadline. Your payment is due one calendar month and seven days after your VAT period ends, the same date as the return, and filing the return on time still comes first whatever happens to the money. There's more on how and when to pay your VAT bill, and on how to set up a VAT payment plan, including who can do it online.

HMRC will want to see that the plan is realistic before it agrees. It expects you to reduce the debt as much as you can by releasing assets like stock, vehicles, and shares, and it may ask company directors to put personal funds into the business, accept lending, or extend credit. You'll usually be asked to pay around half of what you have left over each month, as If you cannot pay your tax bill on time on GOV.UK sets out. So it's worth an hour to plan your cash flow first and work out what you can genuinely commit to. An offer you can keep is better than a generous one you can't.

If the online service won't work for you, call HMRC's VAT payment line on 0300 200 3831, open Monday to Friday, 08:00 to 18:00, and closed on bank holidays. One thing a plan doesn't do is make the liability smaller: it moves it into later months, so if next quarter looks just as tight, the Cash Accounting Scheme is the thing that changes that.

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What paying VAT late costs you

Interest runs from the first day a VAT payment is overdue, including on the balance of a payment plan, and penalties start once you're 16 days late. HMRC charges late payment interest at the Bank of England base rate plus 4%. That is 7.75% a year from 9 January 2026, with the base rate at 3.75%, and the next decision is due on 5 November 2026.

The penalties come in three stages:

• Up to day 15. No penalty. Interest still runs from the first day the payment is overdue.
• Day 16 to day 30. A first penalty of 3% of the VAT you still owed at the end of day 15.
• Day 31 onwards. That 3%, plus another 3% of whatever was still outstanding at day 30, plus a second penalty charged daily at 10% a year until the balance is clear.

Those rates rose on 1 April 2025, from 2% at each of the first two stages and 4% a year at the third, so any guide still quoting 2% and 4% is out of date. HMRC's own worked example shows the shape of them: on a £15,000 VAT bill paid 51 days late, the first penalty is £900 and the second is £86.30, which is £986.30 on top of the interest.

The jump from nothing to £450 is the reason to act inside the first fortnight, and the daily second penalty is the reason not to let a bill drift past a month. It is also why asking HMRC for a plan early is worth so much: inside 15 days there is no penalty to avoid later. Break a plan, though, and HMRC can cancel it and charge both penalties as though it had never existed. Late payment penalties run to different stages on other taxes, and How late payment penalties work if you pay VAT late on GOV.UK has HMRC's full method for VAT.

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Pay VAT when your customers pay you, with the Cash Accounting Scheme

If your VAT keeps falling due before your customers pay, the VAT Cash Accounting Scheme changes when you owe it rather than how you fund it. Under the scheme you pay VAT on your sales once your customers have paid you, and reclaim VAT on your purchases once you've paid your supplier. For a company on 60-day payment terms, that's the difference between funding a VAT bill and simply paying it.

You can join if your estimated VAT taxable turnover is £1.35 million or less over the next 12 months, and you have to leave once it goes above £1.6 million. There's no application to make: you start at the beginning of a VAT accounting period, and you don't have to tell HMRC, as long as your returns and payments are up to date.

Three limits matter. You can't combine it with the Flat Rate Scheme, you can't use it for goods you import, and it won't help with a bill that's already due, because it only changes how you account for VAT from the next period on. The conditions are in the VAT Cash Accounting Scheme on GOV.UK, and it's worth raising with your accountant before your next period starts.

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Paying HMRC on time while you wait for the money

On interest alone, a Time to Pay arrangement usually costs less than borrowing, and if the bill is already overdue it's the first call to make. Borrowing to pay a VAT bill answers a different question: not how to spread a bill you can't pay, but how to pay one on time when your own money is simply arriving late.

That's a timing problem rather than a shortfall, and our research, published in April 2026, found the average small business is owed £22,000 in payments, which is often the exact money that hasn't arrived by the time the VAT deadline has. It bites hardest where income is seasonal, or where customers pay on 60-day terms and the VAT quarter doesn't wait for them. If that's your position, an iwoca Flexi-Loan lets you pay the bill on time and repay early for free once your sales catch up, and it needs a personal guarantee from a director. If the money genuinely isn't coming, though, borrowing moves the problem rather than solving it, and that's a conversation for your accountant.

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Deferred VAT FAQs

Is deferred VAT the same as deferred tax?

No. Deferred tax is an accounting concept: the tax effect of timing differences between your accounts and your tax computation, shown on your balance sheet. Deferred VAT is about when real money leaves your bank account. Deferred tax assets and liabilities are a question for your accountant, not for HMRC's VAT rules.

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Can I add another tax bill to a VAT payment plan?

Sometimes. If another tax bill comes up that you can't pay, you may be able to add it to the plan, but contact HMRC before the new bill is due rather than letting it go unpaid. HMRC decides case by case, so don't plan around it.

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What if HMRC turns down my payment plan?

You can't appeal a refused payment plan, but you can complain, or go back with a better-evidenced offer, as Help and advice on GOV.UK explains. An accountant is the right person to build that offer, and it's worth doing before the penalty stages bite.

Every rate, penalty, and threshold on this page comes from GOV.UK or the Bank of England and was checked on 14 October 2026. The Budget on 28 October 2026 and the Bank of England's decision on 5 November 2026 could change them, so check GOV.UK before you act on a figure.

Nothing here is tax or financial advice. VAT rules turn on your own circumstances, so talk to your accountant or a tax adviser before you choose a route.

Sources

• VAT deferred due to coronavirus (COVID-19), GOV.UK
• How late payment penalties work if you pay VAT late, GOV.UK
• HMRC interest rates for late and early payments, GOV.UK
• If you cannot pay your tax bill on time, GOV.UK
• Check when you can account for import VAT on your VAT Return, GOV.UK
• Apply for an account to defer duty payments, GOV.UK
• How to use your duty deferment account, GOV.UK
• Check if you can get a guarantee waiver for a duty deferment account in Great Britain, GOV.UK
• VAT Cash Accounting Scheme, GOV.UK
• Bank Rate, Bank of England