Unable to Pay Your VAT? A Comprehensive Guide to Addressing VAT Arrears

Business owners are responsible for collecting VAT from their customers and remitting it to HM Revenue and Customs (HMRC). However, there may be instances when paying VAT on time proves challenging, leading to penalties, interest, and even legal consequences.

This article outlines the steps you can take if you’re facing difficulties in paying VAT, explores the repercussions of delayed VAT payments, and presents the various options at your disposal.

Seeking expert guidance on VAT matters is crucial when they become overwhelming. Contact our team today for a friendly and no-obligation consultation.

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Overcoming VAT Payment Challenges: Practical Solutions

If you’re a company director struggling to pay your VAT, here are four potential solutions:

Time to Pay (TTP) agreement with HMRC: This informal payment plan allows your company to repay the outstanding amount in installments. However, you’ll still need to make your regular VAT payments alongside the installments. TTPs typically last 12 months, but HMRC may consider longer arrangements in certain cases.

VAT loan or overdraft from your bank: Emergency financing can address cash flow issues if your company can manage the repayments. Options include a loan, overdraft, extended payment terms with suppliers, or asset sales to generate cash.

Rescue Options: These options protect your company from creditor pressure or legal action during restructuring. They include a Company Voluntary Arrangement (CVA), a structured repayment plan with creditors for a portion of the debt, and Administration, a formal insolvency procedure where a licensed insolvency practitioner manages the company’s affairs.

Voluntary liquidation: If your company has no viable future, closing it through voluntary liquidation may be necessary. Insolvency practitioners handle this process; you cannot liquidate a company yourself. This typically means that corporate debts end with the company.

Unpaid HMRC VAT debt is often a symptom of a deeper business problem. This article outlines your options as a director, the consequences of inaction, and the escalation process if you fail to address the issue.

VAT Payment Obstacles: Exploring the Underlying Causes

Delays in VAT payments by a limited company’s director could indicate financial instability, warranting immediate professional assistance.

Operating while insolvent could expose the director to personal liability for company debts, as per Section 214 of the Insolvency Act.

Repeated VAT payment lapses could prompt legal action from HMRC, potentially resulting in a County Court Judgment (CCJ) or even insolvency. This could tarnish the company’s credit rating, making future borrowing challenging.

Failure to pay VAT could also jeopardize relationships with suppliers and customers. Suppliers may be wary of doing business with a company known for late payments, while customers may lose confidence if they suspect financial difficulties.

In conclusion, the inability to pay VAT poses severe threats to a company’s health. Seeking professional guidance and evaluating all available options are crucial to finding a workable solution.

Consequences of Unpaid VAT

Failure to comply with HMRC’s requests to settle outstanding tax liabilities can result in a series of escalating consequences, as outlined below.

Understanding VAT Notices of Assessment

If you neglect to submit a VAT return, HMRC will issue you an official document called a “notice of assessment.” This document outlines the estimated tax debt you owe and provides a 30-day response period.

Even if experiencing financial difficulties, it is crucial to submit your quarterly VAT returns promptly. This demonstrates your adherence to legal procedures and strengthens your position when negotiating with HMRC.


Late VAT Returns and Additional Charges

Incurring late payment penalties for HMRC VAT returns can further strain your finances. Surcharges are imposed on late payments, increasing your overall tax debt. These additional charges can exacerbate cash flow problems, which you can ill afford. Surcharge periods extend for 12 months, and repeated late payments trigger further penalties. Surcharge amounts escalate with each late payment and are calculated as a percentage of the outstanding tax debt.

Company Risks Associated with Unpaid VAT

For significantly overdue tax payments, HMRC may issue a distraint order, demanding immediate settlement of the outstanding VAT debt. Maintaining up-to-date VAT rebates can help reduce overall tax liability, particularly in cases of bad debt claims. Distraint signals a serious escalation, and prompt action is essential. Contact us as soon as possible to address these communications. HMRC is increasingly utilizing this legal recourse. Failure to make timely payments or if payments fail to reach HMRC by the due date can quickly lead to bailiff action at your business premises.

Additional Costs of Untimely VAT Payments

Late tax liabilities may incur interest charges. Promptly contacting HM Revenue and Customs can prevent further penalties from being imposed. Company directors concerned about penalty charges should refer to our comprehensive article on VAT penalties. If you suspect business insolvency, seek guidance from an insolvency practitioner like ourselves to assess the viability of salvaging and continuing business operations.

What is a VAT Security Bond?

If you have a history of late VAT payments or HMRC believes you are facing financial difficulties, they may issue you a “Notice of Requirement to Pay a Security” for your VAT payments. This means you’ll be required to pay a deposit or bond, typically equivalent to six months of VAT or projected VAT. While you’re not obligated to pay this amount, refusal could lead to HMRC taking stricter measures to collect the debt. It’s advisable to seek guidance from your accountant or a tax expert like us if you receive such a notice.

HMRC’s Approach to Unpaid VAT

HMRC may engage external debt collection agencies if you persistently disregard their payment requests. They have the authority to seize and sell assets to recover the owed amount. This process commences with a formal Notice of Enforcement, which incurs a £75 charge.

Insolvency Due to Unpaid VAT

HMRC’s most severe action for non-payment of debts is to force your company into insolvency through a winding-up petition. They will only resort to this if they are certain of your insolvency and believe you cannot repay the debt in the future, suspect you are deliberately evading payment, or believe you have the means to pay but are choosing not to.

Steps to Take When Facing VAT Payment Difficulties

If you’re unable to pay HMRC and have accumulated arrears, take proactive steps to address the issue rather than ignoring it.

Communicate with HMRC: They are open to time-to-pay arrangements but are unresponsive to avoidance. Contact information for relevant personnel should be included in any correspondence you receive from them.

Understand Your Cash Flow: Comprehending your cash flow situation is crucial for determining your options and devising a plan.

Seek Professional Advice: Consult with your accountant and discuss potential solutions, such as insolvency or a Company Voluntary Arrangement (CVA). If you need further assistance, feel free to contact us for free advice on closure or business rescue options.

Communicating with HMRC Regarding VAT Payments

If you’re facing difficulties in settling your VAT payments, consider reaching out to HMRC’s Business Payment Support Service for assistance. They can provide valuable guidance and support in managing your VAT obligations.

HMRC Business Payment Support Service Contact Information:

Telephone: 0300 200 3835

Gather relevant information to ensure a smooth and efficient interaction with the support team. They may inquire about the following:

  • The reasons behind your inability to pay the tax

  • Actions you’re taking to secure funds for settling the outstanding VAT bill

  • Any immediate payment you can make towards the outstanding amount

  • The estimated timeframe for settling the remaining VAT balance

  • Any reference numbers provided in communications received from HMRC

By being prepared with this information, you can streamline the support process and expedite a resolution to your VAT payment concerns.

When You Can’t Pay VAT: Exploring Your Options

Company directors facing difficulties paying VAT have four options:

Time to Pay (TTP): Request a TTP arrangement with HMRC, allowing the company to settle the outstanding amount in installments over an extended period, typically 12 months.

Seek Funding: Explore business funding or emergency financing options to address cash flow constraints.

Company Voluntary Arrangement (CVA) or Administration: Consider a CVA, a structured repayment plan with creditors for a portion of the debt, or administration to shield the company from creditor pressure or legal action during restructuring.

Voluntary Liquidation: If the company’s future prospects are bleak, initiate voluntary liquidation to wind down its operations.

VAT Payment Delinquency: Implications and Actions

Incapability to pay VAT could signal the company’s insolvency, necessitating professional guidance for the director.

If VAT arrears exist, open communication with HMRC and proactive action are crucial. Failure to settle VAT obligations will prompt HMRC to escalate the matter through a series of letters, phone calls, and field officer visits, potentially culminating in company liquidation.

Even if VAT payment is challenging, continue to submit quarterly VAT returns promptly. Carefully evaluate all available options and act swiftly.

Finding Support

For immediate assistance during business hours, reach out to us via live chat for friendly, confidential advice. Alternatively, call 0121 769 1915 to speak with an insolvency practitioner.

We’ve guided thousands of company directors through difficult times.

FAQs about Company Closure

While HMRC is unlikely to lower your VAT bill, they may consider a payment plan to alleviate your cash flow concerns.

If you’re unable to pay your VAT bill, seek professional guidance from an accountant or debt specialist like Company Debt. We can assist you in comprehending your options.

Prolonged non-payment of VAT can result in severe consequences, including VAT surcharges, civil debt collection actions, and even insolvency proceedings in extreme cases.

Failure to pay VAT can result in the seizure of assets or property to cover the outstanding amount. In severe cases, legal action may be pursued, leading to further financial and legal repercussions.

When a company enters liquidation with unpaid VAT, the outstanding VAT is considered part of the company’s overall debt and will be dealt with during the liquidation proceedings. Creditors, including HMRC, will receive payments from the company’s remaining assets, if any, in accordance with the established legal hierarchy for debt repayment.


The primary sources for this article are listed below, including the relevant laws and Acts which provide their legal basis.

You can learn more about our standards for producing accurate, unbiased content in our editorial policy here.

Trusted Source – .GOV – HMRC as a Preferential Creditor