What are my options when I cannot pay the VAT?

If you find it challenging to settle the VAT, various options exist to assist your company. HMRC is eager to support those facing difficulties with VAT or other tax commitments and might establish a Time to Pay (TTP) arrangement to facilitate the repayment of owed funds. Alternatively, opting for a formal insolvency solution could be more suitable if your VAT arrears are just a portion of the overall overwhelming debts the company is experiencing. 


I can’t pay the VAT – what are my options?

If meeting HMRC tax obligations or VAT payments is challenging, there’s a possibility to negotiate with HMRC for a payment arrangement, restructuring the payments into manageable instalments. A limited cash flow may signal insolvency if the business struggles to meet creditor payments and operational expenses.


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

If facing challenges in paying VAT, explore these options:

  • 1HMRC might permit spreading outstanding VAT across a maximum of 12 monthly instalments.
  • Consider closure avenues like Company Voluntary Arrangement (CVA) or Creditors’ Voluntary Liquidation (CVL). Negotiate with HMRC for new terms or wind up the company if a viable future is not evident.
  • Explore Administration or Pre-Pack Administration. Enlist an Insolvency Practitioner (IP) to rescue the business from insolvency.


What is VAT and do I have to pay it?

VAT, which stands for Value Added Tax, is imposed on UK companies with a taxable turnover surpassing or expected to exceed £85,000 in a 12-month period. This threshold mandates VAT registration, but companies, regardless of size, can opt for voluntary VAT registration if they wish. Upon VAT registration, whether mandatory or voluntary, specific obligations must be followed, including the regular submission of VAT returns.


How often do I have to pay my VAT bill?

VAT returns need to be submitted electronically every three months unless there is special permission to file manually. Submitting paper returns without prior approval incurs a £400 fine. The deadline for filing returns is within one calendar month and seven days after the accounting period concludes. Any owed VAT must be fully paid by the same deadline.


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

Despite having an accountant managing your company’s financial and tax matters, as the director, you bear the ultimate responsibility for the accuracy of accounts or returns submitted. If your accountant makes an error leading to a substantial VAT bill for missed or insufficient payments, you must arrange to settle this, as an accountancy mistake is not a valid excuse for non-payment 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 your VAT return is not received by HMRC by the deadline or if full payment of the VAT due is not made, an automatic penalty point will be issued. These points accumulate until reaching a set threshold, triggering the imposition of fines. The penalty points system is effective for accounting periods starting after 1 January 2023, replacing the old ‘surcharge period’.

Upon reaching the threshold, a £200 fine is issued, followed by an additional £200 fine for each subsequent missed VAT deadline.

Persistent delays in VAT payment result in escalating penalties, leading to an unmanageable debt situation. It is crucial not to let charges accumulate, as this can make it exceedingly difficult to restore a stable financial position.


What is a VAT notice of assessment?

Failing to submit your VAT return or make the required payment prompts HMRC to send a ‘VAT notice of assessment of tax.’ This notice provides an estimate of the VAT amount HMRC believes you owe. Upon receiving such an assessment, you can either submit your completed VAT return and pay the owed amount. If you think the estimate is too low, you have 30 days to notify HMRC and provide a correct VAT return along with the associated payment. Paying an assessment knowingly lower than the actual amount may result in a penalty.

If you believe the assessment amount is higher than it should be, there is no appeals process to reduce it. In such cases, you must submit your VAT return and pay the exact owed amount.

Even if you are unable to pay the VAT, it is advisable to submit your quarterly return. This demonstrates to HMRC your willingness to comply with VAT requirements, even if you are not financially able to settle the owed amount. Additionally, it prevents the issuance of an inflated notice of assessment.


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

While occasional allowances may be granted for late payments, if your company is consistently unable to settle VAT arrears and meet ongoing tax obligations, it’s crucial to establish a formal plan.

HMRC allows companies to clear tax arrears through monthly instalments if they believe the company has a realistic chance of repayment within a reasonable timeframe. This arrangement, known as a Time to Pay (TTP) arrangement, typically lasts no longer than 12 months, with shorter-term TTPs of around 3-6 months being highly favoured by HMRC.

Persistent non-payment of your VAT bill can result in more severe actions, including distraint and the possibility of a Winding Up Petition being served on your company. While HMRC is understanding and willing to work with those facing tax challenges, they won’t hesitate to take serious action against companies that refuse to engage or seek a viable solution.


Consider the reasons behind your inability to pay

If settling your VAT or other tax responsibilities poses a challenge, it’s crucial to identify the underlying issue preventing payment. Once you understand the cause, you can devise an action plan to address it.

For instance, if late payments from creditors are depleting your short-term cash flow, prioritise chasing up these late payers and consider reassessing your current collection strategy and payment terms for the future.

On the other hand, if your company is experiencing a cash flow imbalance, where more money is going out than coming in, you must evaluate the business’s viability. Seeking advice from a licensed insolvency practitioner is recommended. They can assess your situation and provide guidance, which may involve formal negotiations with creditors through a Company Voluntary Arrangement (CVA) or exploring closure options if debt levels are particularly high.


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Contact Vanguard Insolvency for further help

If you find yourself overwhelmed by growing VAT, tax, or supplier debts, seeking professional assistance is imperative. Ignoring these debts will not make them disappear; in fact, your situation is likely to worsen the longer it is left unaddressed. Vanguard Insolvency boasts a nationwide team of seasoned licensed insolvency practitioners ready to provide the necessary help and advice during financial distress. Contact our expert team today to schedule a consultation at your local office.

Senior Partner at Vanguard Insolvency Practitioners | Website | + posts

I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.