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

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

Updated: 9th September 2021

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 accept that we owe the money HMRC are asking for and we have every intention of paying up in full as soon as we’re able to, but we need some kind of extension while we work through our current financial problems.

I’m concerned my company could face vat penalties because we are already late and could be late again, and even worried that more serious action could be taken against us. 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?


HMRC are by far the largest creditor of businesses in the UK. In many instances where a company is experiencing financial difficulties, directors prioritise paying staff and suppliers in order to ensure continuation of business, often at the detriment to HMRC.

Businesses falling behind in their tax obligations is not uncommon, and HMRC are willing to cooperate with late payers who are keen to bring their affairs up to date. This is often achieved through a Time to Pay (TTP) arrangement which, as the name suggests, gives a company the opportunity to pay their outstanding tax liability through a series of affordable monthly payments. However, HMRC do not grant TTP arrangements to any business that requests one, instead HMRC evaluates on a case-by-case basis.

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The reasons behind your inability to pay

The first thing they will want to ascertain is whether you are unable or simply unwilling to pay the taxes which have become delinquent. A great number of directors claim to be unable to pay the VAT they owe citing poor cash flow as a reason when in reality they are looking to invest their profits in business expansion or new endeavours. This is not a legitimate reason to request TTP.

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.

Consider finance options

If your main source of financial worries stem from customers paying you late which is then having a knock-on effect on your ability to meet your own obligations, you may wish to consider a form of invoice finance. This could not only free up the funds you need to clear your HMRC debt, but could also do wonders for your general cash flow.

Invoice finance is an umbrella term for two types of finance plan – invoice discounting and invoice factoring. Both are based on the same basic principle that the finance company provides an advance on your outstanding invoices, giving you immediate access to those funds which are tied up. The amount released is a set percentage of the total invoice amount, with the remainder being available once your customer has paid the invoice in full, minus the fees taken by the finance company. As with all finance products this does come with a cost, however, for many companies the certainty this provides regarding cash flow management is worth the price.

Putting your case to HMRC

One last thing to keep in mind when requesting additional time to pay is that you need to be realistic about the amount of money your company will be able to offer on a monthly basis. Don’t overextend what you can realistically pay because the very first missed payment will cancel your agreement and put you back to square one. On the other hand, HMRC tend to want to see that you are able to bring your company’s account up to date within 12 months; this means that the amount you offer needs to be sufficient enough to do this.

If your finances simply won’t allow for this then you may need to consider an alternative way to rescue your business. This could involve a formal insolvency procedure such as a Company Voluntary Arrangement (CVA) which involves entering into a legally binding payment plan with all creditors (including HMRC) while continuing to trade; or alternatively placing your company into administration which gives your company legal protection while a way forward is plotted. An insolvency practitioner will be able to talk you through the various options available and suggest the most appropriate one based on your company and also your future ambitions towards it.

Failure to keep up with the TTP

If a TTP is granted you will typically be given a period of up to a year to fully clear your debts to HMRC; during this time you must also keep on top of your current tax responsibilities. Failure to do this will see your TTP terminated and you will be expected to make a full settlement payment of the amount left owing. If this is not possible, HMRC will take further measures to enforce the debt which could involve enforcement action or even petitioning the court to wind up your company.

If you have fallen behind with your payments to HMRC, or are concerned that you may have trouble keeping up with them in the future, it is vital that you seek expert help and advice before the situation escalates beyond rescue. Real Business Rescue’s team of licensed insolvency practitioners will take the time to understand your situation and the circumstances which led up to it. From this we will put a plan in place to do what is best for both your company and its creditors. Call our expert team today on 0800 644 6080 to arrange a free no-obligation consultation with a licensed insolvency practitioner at any one of our 100+ offices.

Real Business Rescue has a dedicated helpline for company directors who are struggling with HMRC tax payments following the COVID-19 coronavirus outbreak; you can discover the options available to you and your business and find out more about Time To Pay by calling us on 0333 009 6851.

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Keith Tully


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Director Support - Business suffering from Cash-Flow Problems?
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