New guidance from HM Revenue and Customs states that payments made by cheque will require to have cleared by the due date in order to avoid penalties being charged. This policy will come into effect on 1st April. This now means that irrespective of the date that the cheque is actually received by HMRC, the payment will only be considered to be on time if it clears on time.
In a press release, chartered accountants Kingston Smith said: “If you are posting a cheque to HMRC, you should allow enough time for the post to arrive and for the cheque to clear. With businesses now relying on HMRC’s efficiency to bank their cheques promptly, electronic payment methods are likely to look much more attractive.”
Kingston Smith’s VAT partner, Adrian Houston, actually pointed out the inequity between the processes for electronic payments and cheque payments as those paying electronically usually have a grace period of seven days following the due date whereas those paying by cheque will now have to make the payment seven days in advance.
Another change due to be implemented on 1st April requires any businesses who have an annual turnover of £100,000 or more to file and pay their VAT return online from now on. This rule will exist even if the business’s turnover drops below this threshold.
Houston concluded: “Most of the traders paying by cheque after April 1st will be small in size and number [so] this new measure is likely to go unchallenged and HMRC will get its wish i.e payment by cheque will become a rarity.”