When cheque payments are 'received' by HMRC

These days, most payments of VAT to HMRC by taxpayers are made electronically but cheque payments are still allowed in certain circumstances, notably by small, already registered businesses with annual VAT-exclusive turnover of less than £100,000, which continue to file paper returns.

Most importantly, from 1 April 2010, HMRC are treating payments as 'received' on the date cleared funds reach their bank account. This is a change from the previous treatment whereby HMRC accepted that payment was made on the date they received the cheque.

So in effect, taxpayers sending cheques need to allow an extra three bank working days for their cheques to clear, in order to avoid being in default.

Of course, Saturdays, Sundays and Bank Holidays are not bank working days.

Furthermore, HMRC say taxpayers should allow a further three working days to allow for possible postal delays. Therefore, in future, cheques should be sent a full six working days before the date the cleared funds are required in HMRC's bank account.

HMRC have stated that where cheque payments are not received and cleared on time, taxpayers 'may' be liable to a financial penalty, but at this stage it is unclear exactly under what circumstances HMRC will actually issue one.

This change does not affect payments by Bank Giro as these are treated as electronic allowing taxpayers an extra seven calendar days for cleared funds to reach HMRC, unless they are for the Annual Accounting Scheme or for Payments on Account.

The changes have been made so that those paying by cheque cease to have a cash flow advantage over those who file electronically, and as an encouragement to those who are not obliged to file electronically, to take up the option, as it is safer and easier to administer.