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Help and advice for company directors when you cannot pay the VAT

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Updated: 5th February 2020

Understanding what happens when your company can't afford the VAT

Value Added Tax (VAT) is a consumption tax that is placed on goods and services and is collected by HMRC. Every business must charge their customers “output VAT” in addition to the base cost of the transaction. Since this tax doesn’t have to be paid to HMRC until the deadline it can be easy for struggling companies to spend the funds that were supposed to be used to pay their VAT and then be left to deal with the consequences. If you’re worrying about what to do if you can’t pay your VAT bill consider the following information:

What Happens If You Never Registered For VAT?

All companies that conduct more than £79,000 in VAT-taxable annual business are required to register for VAT.  Failing to do so would result in the company owner being held responsible for the amount owed plus penalties. However, if the company has not passed this registration threshold then you may not even need to register for VAT. If you’re unsure whether you should be registering for VAT you may want to discuss the situation with a professional insolvency practitioner.

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Be careful when taking advice that you are actually speaking to a qualified insolvency practitioner and not a broker or middleman who may look to charge unnecessary upfront fees.

What Happens If You Miss a VAT Payment?

As a business owner/director it is your duty to ensure that the VAT payment is not only issued but also clears to HMRC by the due date. If you’re unable to do so you will be charged a default surcharge – a percentage of the owed VAT.  If several payments are made late then you will be charged an even higher penalty rate surcharge. If you conduct business for several months afterwards and don’t pay VAT at all these penalties can add up, and failure to address the situation completely can result in criminal charges in rare cases.

Is It Possible to Avoid Penalties?

Fortunately, it is possible to avoid HMRC penalties altogether, even if you simply cannot pay VAT the moment. All you need is an experienced insolvency professional to negotiate on your behalf. An insolvency practitioner can assess the amount of money your company is making and how much tax is owed and then calculate viable payment terms that HMRC is likely to agree to. This gives you an extended deadline and may also reduce the total amount you’re required to pay in each instalment.

When Should You Start Worrying About It?

If you suspect that you owe VAT, need to register for VAT, or are on the verge of being penalised for not paying VAT, there is really no time to waste. You must act quickly to come to some type of an arrangement with HMRC or you will face hefty penalty charges and you will have to pay them eventually. Call us today on 0800 644 6080 to find out how we can help you alleviate HMRC pressures and eliminate the hassle of worrying about taxes if you can’t pay the VAT bill.

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