Business News

VAT Payments made by Cheque - Important Changes with effect from 1 April 2010

From 1 April 2010 all payments of VAT made by cheque, and sent by post, will be treated as being received by HM Revenue & Customs on the date the cheque clears through the banking system and not, as was the case previously, when the cheque is received. This means that businesses must now allow extra time for their payment to clear into HM Revenue & Customs bank account to ensure any payment will not be deemed to be late. A cheque normally takes three bank working days to clear and may take two to three working days to arrive by post and so cheques will need to be posted at least  five working days before the due date to meet this new requirement.

A business may be liable to a surcharge for late payment if a cheque payment does not clear by the due date shown on the VAT return.

This change does not affect any cheque payments made by Bank Giro. Payments by Bank Giro are treated as electronic which means that businesses will get up to an extra seven calendar days for the cleared payment to reach HM Revenue & Customs (unless the Annual Accounting Scheme is being operated or Payments on Account are required).

The reason for this change given by HM Revenue & Customs is......

"From 1 April 2010 businesses with an annual turnover of £100,000 or more (exclusive of VAT) and all newly registered businesses must file their VAT returns online and pay any VAT due electronically. The purpose of the change to the cheque clearance rules is to encourage compliance with the requirement to pay electronically by removing the cash flow advantage currently enjoyed by businesses paying by cheque. This change is also intended to make electronic methods of payment more attractive to those businesses who are not required to file their VAT returns online and pay electronically from 1 April."

There are advantages achieved by making VAT payments electronically as this, in most cases, gives up to seven extra calendar days to pay or, if paying by Direct Debit, at least ten extra calendar days. This extra time does not apply to businesses if they use the Annual Accounting Scheme or are required to make Payments on Account.

For further advice on paying your VAT electronically, please call Heather Mann on 01329 225236.