The Payments On Account regime applies to businesses required to make large payments of VAT to HMRC. Entry to the regime is based on the net payments shown as due to HMRC on the VAT returns, i.e. the box 5 figures calculated as output tax less input Tax.
The disposal of a number of opted to tax properties has meant that the net liability for your client has exceeded the POA threshold. All VAT-registered businesses with a VAT liability of £2.3 million or more in a period of 12 months or less, are required to make interim payments at the end of the second and third months of each VAT quarter in advance of their quarterly VAT returns. The amount of the interim payments is calculated at 1/24th of the annual VAT liability in the period in which the threshold was exceeded.
A balancing payment for the quarter (i.e. the quarterly liability less the payments on account made) is then made with the VAT return.
The payments on account and balancing payments must be made electronically and funds must clear to Revenue & Customs’ bank account by close of business on the due date. An annual payment schedule is produced by HMRC clearly showing the due dates for each interim and balancing payment. The due dates for payments on account are the last working days of the second and third months of every VAT quarter no matter what your period end date is. Please also note that businesses within the POA regime do not benefit from the additional seven calendar days allowed to other VAT registered businesses paying electronically. HMRC must receive the payment by the due date shown on the schedule. If the deadline falls on a weekend or bank holiday, your payment must clear HMRC’s bank account on the last working day before it, unless you pay by Faster Payments.
HMRC provide guidance on their website: https://www.gov.uk/guidance/vat-payments-on-account.
The guidance provides the following information regarding the POA start date and annual cycle:-
“The payments on account cycle starts in the first quarter after you go over the £2.3 million threshold.
Your payments will stay the same until the start of the next annual cycle.
The annual cycle begins in April, May or June depending on which VAT return ‘stagger’ you’re on. We base the amount of your payments during the annual cycle on your liability in the period known as the ‘reference year’.
This table sets out the reference year for each return stagger:
|Stagger||Quarter ends||Reference year||Annual cycle begins|
|1||Mar, Jun, Sep, Dec||Year ending Sep||April of following year|
|2||Apr, Jul, Oct, Jan||Year ending Oct||May of following year|
|3||May, Aug, Nov, Feb||Year ending Nov||June of following year|
So, if you’re on stagger 1, your VAT liability for the reference year ending September 2018 will decide the amount of each payment on account from April 2019 until March 2020.”
Removal from the scheme
A business will be removed from the scheme by HMRC 6 months after their VAT liability falls below £2.3 million in a reference year. HMRC will write to the business advising of the effective date of withdrawal, HMRC provide the following illustrative example:-
“If your reference year ends in September, and your liability is below the threshold at that point, your last payment on account will be in the following March. But you must carry on making payments on account until then.”
A business can also request removal from the arrangement from an earlier date if the total VAT liability within any completed year ending after the reference year falls below £1.8 million. The business is required to apply to the Payments On Account Team in writing to request removal from an earlier date, and will be removed with effect from the date written approval is provided.
Making Tax Digital
MTD has been deferred until October 2019 for POA businesses. Although they are free to begin sooner, the compulsory start-date will be the first VAT quarter beginning on or after 1 October 2019.
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If you have a VAT query why not contact the VAT Advice Line on 0844 892 2470 to discuss the implications. Our team of experts have a wealth of experience and can also provide a written consultancy service at competitive rates.