What happens if you cannot pay your company's VAT bill?

I can't pay the VAT - what are my options?

If you are unable to afford HMRC taxes and can’t pay your VAT bill, you may be able to enter into an arrangement with HMRC to restructure your outstanding payments into affordable instalments. A squeezed cash flow position can indicate at deeper financial problems within your business so you should take this as a warning sign that your company may be at risk of potential insolvency and the potential that you will need to close your company if the situation does not improve.

Read our main page on HMRC Time to Pay Arrangements.

What happens if I am unable to pay the VAT my company owes?

You can consider the following options if you are unable to pay VAT:

• Time to Pay Arrangement - HMRC may allow you to make outstanding VAT payments by way of a series of monthly instalments across a maximum of 12 months.
• Closure Options - If the company is insolvent and has no chance of recovery, you may need to consider placing the company into a Creditors’ Voluntary Liquidation (CVL) process to bring the company's affairs to an end. As liquidation is a formal insolvency procedure, you can only enter this process under the guidance of a licensed insolvency practitioner.
• Rescue and Recovery Options - Enter Administration or enter into formal negotiations with creditors (including HMRC) to restructure existing debts.

 

 

 

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What is VAT and does my company have to pay it?

VAT – or Value Added Tax – is a tax levied on companies trading in the UK whose taxable turnover exceeds, or is anticipated to exceed £90,000 in any 12 month period. This threshold compels companies to become VAT registered, however, companies of any size can voluntarily register themselves for VAT should they choose to do so. Once VAT registered, voluntarily or otherwise, you must adhere to certain obligations including the submitting of regular VAT returns.

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How often do I have to pay my VAT bill?

You must submit VAT returns electronically every three months, unless you have special dispensation to file your returns manually. Filing paper returns without prior permission comes with a £400 fine.

Returns must be filed within one calendar month and seven days following the end of an accounting period; the deadline for making full payment of any VAT owed is on the same date.

My accountant has calculated my VAT return incorrectly – do I still have to pay?

Even though you may have employed an accountant to handle the financial and tax affairs of your company, as its director, you are still ultimately responsible for ensuring that any accounts or returns submitted are an accurate representation of your company.

Therefore if your accountant has made a mistake, and you are subsequently landed with a hefty VAT bill to make up for missed or insufficient previous payments, you must make provisions to pay this. An accountancy error is not a valid excuse for non- or late-payment of your outstanding VAT liability.

What happens if I do not submit my return or pay my VAT bill on time?

If HMRC do not receive your VAT return by the deadline, or if you fail to make full payment of the VAT due, you will be automatically issued with a penalty point. Penalty points will continue to accrue until you reach a designated threshold, at which point fines will start to apply. The penalty points scheme applies to accounting periods beginning after 1 January 2023, and replaces the old ‘surcharge period’.

Once you reach the threshold, you will be issued with a £200 fine, along with subsequent £200 fines for each VAT deadline you continue to miss. 

With mounting penalties each time you are late paying your VAT, the amount you owe can soon escalate to levels which are unmanageable. Once this happens it can be extremely difficult to find your way back to a solid financial footing. It is therefore imperative that you do not let the situation carry on with charges continuing to accumulate. 

What is a VAT notice of assessment?

Failure to submit your VAT return, or pay the amount due, will trigger HMRC sending you a ‘VAT notice of assessment of tax.’ This is essentially an estimate of what HMRC believes you owe in VAT.

When issued with such an assessment you can either send your completed VAT return and pay what you owe, or if you believe the estimate is too low, you have 30 days to notify HMRC about this and to produce a correct VAT return and the associated payment. You could be issued with a penalty for paying an assessment amount you willingly know is lower than it should be.

If you know the assessment amount is greater than it should be there is no appeals process to have this lowered. Instead you must submit your VAT return and pay the exact amount due.

Even if you are in a position where you cannot pay the VAT due, it is still advisable to submit your quarterly return regardless. Not only does this show HMRC that you are willing to comply with your VAT requirements even if you are not financially able to pay what you owe, it also prevents you being issued with an inflated notice of assessment.

What happens if I am unable to pay the VAT my company owes?

While certain allowances are made for the occasional late payment, if you know your company is simply not in a position which will allow it to clear VAT arrears and keep on top of its tax requirements going forward, then you will need to consider putting a formal plan in place.

HMRC will allow companies to pay their tax arrears through a series of monthly instalments as long as they believe the company has a realistic chance of paying what they owe back in a reasonable length of time. This is known as a Time to Pay (TTP) arrangement.

Time to Pay Arrangements will usually not last beyond 12 months, with shorter terms of around 3-6 months being preferred by HMRC.

Repeated failure to pay your VAT bill will lead to more serious action including distraint and even a potential Winding Up Petition being served on your company. While HMRC are reasonable and will listen to those struggling to keep up to date with their taxes, they will not hesitate to take serious action against those companies who refuse to engage with them or who will not attempt to find a workable solution.

Consider the reasons behind your inability to pay

If you are unable to pay your VAT or other tax liabilities, it is vital you get to the root cause which is preventing you doing so. When you know what is causing you problems you can put a plan of action in place to combat it.

Perhaps your creditors are failing to pay their invoices on time leaving your short-term cash flow running dry. If this is the case make it a top priority to chase these late payers up and consider reviewing your current collection strategy and payment terms going forwards. You could even consider a form of invoice financing to bring an element of certainty and security to your incomings.

However, if your company’s issue is that it simply has more money going out than it has coming in, you need to assess whether the business is still viable. It is recommended that you speak to a licensed insolvency practitioner who will be able to evaluate your situation and advise you on your options. This may take the form of formal negotiations with creditors by way of a Company Voluntary Arrangement (CVA), or alternatively exploring closure options should debt levels be unmanageably high.

Contact Real Business Rescue for help with VAT arrears

If you are struggling under the pressure of mounting VAT, other tax liabilities, or supplier debts, you need to enlist the help of a professional as soon as possible. These debts will not go away, and in actual fact your situation is almost guaranteed to get much worse the longer you refuse to deal with it.

Real Business Rescue has a nationwide team of experienced licensed insolvency practitioners able to give you the help and advice you need during times of financial distress. Speak to our expert team today and arrange a consultation at your local office.