Company has VAT arrears – What options are available?

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If your company has VAT arrears, you need to contact HMRC as soon as possible to discuss your situation and how you can bring your VAT liability up-to-date. Being in arrears with HMRC is a serious situation, as the tax body has powers to quickly wind up businesses they believe are insolvent.

This might not be the case with your own business – you could just be experiencing a temporary financial decline due to external trading circumstances – but HMRC need to know that you’re not deliberately avoiding payment.

So what options might be available when you’re in arrears with your VAT?

Time to Pay Arrangement (TTP)

HMRC run a scheme that allows eligible businesses to repay their tax arrears over a longer period of time. This is called a Time to Pay Arrangement, or TTP, and you may be able to use it to repay your VAT.

When you contact HMRC to apply for a TTP, they’ll expect you to have developed a plan for repayment that’s supported with financial documentation. You’ll have to explain why your business has fallen into arrears in this way, and the actions you can take to release the cash needed for their instalment plan.

It’s advisable to contact a licensed insolvency practitioner (IP) to negotiate with them on your behalf, as this demonstrates your willingness and resolve to bring your company’s tax affairs up-to-date.

A Time to Pay Arrangement typically lasts for 3-6 months, but some businesses may be able to negotiate 12 additional months to repay their tax.

Additional funding

Alternative funding, such as invoice finance, could provide the working capital you need to reverse your company’s fortunes. Alternative finance is generally fast to access, and can be more closely aligned to an individual company’s needs.

Securing a cash lump sum or regular payments could improve your cash flow considerably, and allow you to bring your VAT liability back into line.

Company Voluntary Arrangement (CVA)

When a company enters insolvency, restructuring its debts can release the cash needed to carry on in business and overcome temporary financial difficulty. A Company Voluntary Arrangement involves formally restructuring your business debts within a legally binding agreement that also protects the company from legal action.

This could be suitable if you owe more than one debt and are considered viable for the future by a licensed IP. It allows you to make one affordable repayment to the creditors who agree to the new arrangement.

Company administration

HMRC tend to act without delay in recovering monies owed to them, and the threat of liquidation can sometimes quickly materialise for companies in financial difficulty. Company administration offers a temporary ‘safe haven’ away from creditor legal action, and could offer your company a range of options depending on the circumstances.

Creditors’ Voluntary Liquidation (CVL)

If the company’s financial problems are so severe that turnaround isn’t possible, Creditors’ Voluntary Liquidation offers you the opportunity as a director to take a degree of control in  these trying circumstances.

CVL involves realising your business assets and distributing the funds to creditors, prior to the company closing down. If you’ve worked for the company under a formal employment contract, you may also be able to claim director redundancy by entering Creditors’ Voluntary Liquidation.  

What happens if you don’t repay VAT arrears?

When you collect VAT, you do so on behalf of HMRC. Failing to pay this sum over is viewed as a serious action by the tax body, resulting in aggressive debt collection and enforcement measures being taken.

Initially, there’s an escalating system of surcharges according to the number of defaults in a 12-month period. This runs alongside an additional penalty regime. This could include distraint, which means bailiffs would seize business assets to the value of the debt. HMRC also commonly issue winding up petitions against businesses they believe are insolvent.

Seeking professional assistance

Professional assistance in crucial in this situation, and can prevent the closure of your company when it has VAT arrears. The options available depend on the company’s individual circumstances, but it’s vital to act quickly whatever your financial position.

Real Business Rescue is a major part of Begbies Traynor Group, the UK’s leading business rescue and recovery service. Please contact one of our partner-led team to arrange a free, same-day consultation and find out more about how we can help.

Keith Tully


0800 644 6080
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