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I am late paying VAT because of my cashflow. Will HMRC give me time to pay?

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Question

I am late paying VAT because of problems with cashflow. Will HMRC give me time to pay?

I’ve been unable to pay HMRC the VAT that I owe them because we just haven’t had the available funds to do so. We have every intention of paying up in full as soon as we’re able to, but we need some kind of extension to work through this. I’m concerned my company could face vat penalties because we are already late and could be late again. We have enough outstanding invoices that will increase our cash flow when they are paid, but slow payments have caused us to be late paying VAT. Will HMRC give me time to pay? 

Answer

Since so many businesses in the UK are experiencing financial distress, HMRC will take a serious look at why you are late paying VAT. The first thing they will want to ascertain is whether you are unable or simply unwilling to pay taxes which have become delinquent. A great number of directors claim to be unable to pay VAT on time citing poor cashflow as a reason when in reality they are looking to invest their profits in business expansion or new endeavours. This is not a reason to request Time to Pay.

Once they have established that your company is indeed unable to pay the outstanding balance on time and in full, they will take a look at whether or not your business is viable. In the current economic recession, many businesses simply have problems getting paid themselves. If it can be proven that your business is expected to weather its current economic storm, there is a good possibility they will grant you extra time to make payments on VAT.

Most often you will be given a period of up to a year to make monthly payments. However, if you have previously been given an extension and a payment plan which you were unable to adhere to, they will take a good long look at why you haven’t kept those arrangements. In fact, if you don’t keep your end of the agreement they will likely cancel the Time to Pay plan and tack on penalties as well. You do not want HMRC to take legal action because they have the power to issue a distraint order without petitioning the Court!

Since you are already late paying VAT, you must know by now that you have been penalised with a surcharge. All of this will need to be taken into account when setting up TTP arrangements with HM Revenue & Customs. It is hoped that you at least filed on time because that is necessary whether you paid or not – this will most likely work in your favour. If you, like so many directors, are reluctant or leery of talking to HMRC, our insolvency specialists can act on your behalf.

One last thing to keep in mind when requesting additional time to pay is that you need to be realistic in the amount of money your company will be able to pay monthly. Don’t overextend what you feel you can pay because the very first missed payment will cancel your agreement. If your company cannot come up with the amount HMRC sets up for monthly payments, let us help you try to find funding to pay them in full now. HMRC wants companies to succeed and they certainly want to get paid. Will they give you extra time to pay? Let us help you work that out.

Date: Friday 18th January, 2013

Published in: Tax HMRC Vat

Keith Tully

Author
Keith Tully
Partner

Keith has been involved in Business Rescue since 1992, during which time he’s worked for both independent and national firms. His specialties include company restructuring matters and negotiating with HMRC on his clients behalf.

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