READ TIME: 12mins
John A Waller
Updated: May 5th 2021
Can’t Pay VAT! What Happens Next?
I Can’t Pay The VAT – When You Can’t Pay Vat – Then Why Can’t I Pay VAT?
HBG Advisory provides directors with support to ‘clear HMRC debt‘.
You can’t pay VAT? And have started accumulating VAT arrears, therefore causing creditor pressure. What are my can’t pay VAT options? You are therefore raising questions about your company’s cash flow or lack of it. It is essential as a director that you have control of the cash flow of your company. You need then to investigate the problem immediately and have a strategy for the way ahead. You are thus resolving how the crisis came about. Potentially, the issue is a result of slow-paying debtors or bad debt?
On the 1st December 2020, HMRC now ranks as a preferential creditor in Insolvency. They rank above floating charges often issued by banks securing loans. Therefore, affecting how banks will lend as their position is weakened, and exposing those who have furthermore, given personal guarantees as the banks may no longer rely on their first port of call.
Examine the causes behind your failure to pay VAT.
Being in a position where you cannot pay your VAT or any other HMRC liabilities. Then it is essential you get to the root cause, preventing you from doing so. If you know the root cause of your problem, then you may commence a turnaround plan to resolve your cash flow issues.
If your creditors fail to pay their invoices on time, your short-term cash flow is negatively impacted. Then ensure you seek assistance quickly, while chasing late paying debtors, and firming up your policy on credit offered. Remember, a sale is not a sale until it is paid for.
However, if your company’s issue is it simply has more money going out than it has come in, you need to assess whether the business is still viable. It is urged you to talk to a licensed insolvency practitioner who will assess your financial situation and advise you on options available to you and your limited, insuring your company’s creditors are protected. You may require commencing formal negotiations with creditors of your company, considering using a ‘Company Voluntary Arrangement (CVA)‘, if your business is viable, failing which liquidation.
For further reading on HMRC debt and not being able to pay your VAT. Please read ‘dealing with HMRC company debt‘.
Failing to submit a Self Assessment payment on account due in July 2020, your payment deadline was deferred until 31 January 2021. Therefore, you do not have to contact HMRC and face paying penalties.
Please then ensure you contact the HMRC coronavirus (COVID-19) helpline if you are unable to pay tax bills due to the coronavirus.
If you deferred VAT payments due between 20 March 2020 and 30 June 2020, and still have payments to make, you can:
- Pay the deferred VAT in full, on or before 31 March 2021;
- Join the VAT deferral new payment scheme – the online service is open between 23 February 2021 and 21 June 2021;
- Contact HMRC on telephone: 0800 024 1222 by 30 June 2021 if you need extra help.
You may be charged interest or a penalty if you do not:
- Pay the deferred VAT in full by 31 March 2021;
- Opt into the new payment scheme by 21 June 2021;
- Agree extra help pay with HMRC by 30 June 2021.
Pay your deferred VAT in full
You can pay your deferred VAT in full by 31 March 2021.
You do not need to contact HMRC.
Join the VAT deferral new payment scheme.
The VAT deferral new payment scheme is open from 23 February 2021 up to and including 21 June 2021.
If you’re on the VAT Annual Accounting Scheme or the VAT Payment on Account Scheme, you can join the scheme from 10 March 2021.
The new scheme lets you:
- Pay your deferred VAT in equal instalments, interest free;
- Choose numbers of instalments, from 2 to 11 (depending on when you join).
If you’re self-employed
If affected by a coronavirus (COVID-19), then you may claim a grant through the Self-Employment Income Support Scheme.
What happens if I am unable to pay the VAT my company owes?
1) Time to Pay arrangement with HMRC (TTP). Please read ‘Negotiating with the HMRC‘ for further guidance from HBG Advisory.
2) Closure options:
3) Have an Insolvency Practitioner protect the company while trading using an Administration or Pre-Pack Administration. This process allows the company to continue trading.
So your business possesses tax problems. It can’t pay VAT or PAYE? Then is your company insolvent? ACT SWIFTLY NOW.
So, then focus on collecting slow-paying debtors. Ensure you note their insufficient action in settling the debt. When you review credit limits for the future, don’t allow your heart to rule on your decision-making.
Otherwise, you will not clear HMRC debt and pay the VAT bill, and accumulate tax arrears as a direct result.
What happens if the company can’t pay the VAT owed?
Options dealing with HMRC company debt:
1) Negotiate a Time to Pay arrangement (TTP) with HMRC, hoping they consent to your company performing monthly payments over a twelve-month period.
2) Closure options – Choose voluntarily to rescue your company while continuing trading with a Company Voluntary Arrangement (CVA) or close your company with a Creditors’ Voluntary Liquidation (CVL). If negotiating terms fail with HMRC, then consider them, avoiding winding up the company.
3) Consider entering an Administration or Pre-Pack Administration. You may then appoint your option of an Insolvency Practitioner (IP).
4) Additional funding for your business. Review various options.
What should I then do?
If your company’s problem is more money is going out than in? Consequently, you then need to evaluate whether the business is viable and solvent?
It would be best for a director to meet with a licensed insolvency practitioner to review your companies’ financial status.
HBG Advisory evaluates your company situation and then offers to advise you on your options. Also, it may involve formal discussions with your company’s creditors. So to resolve matters, you may need to consider a company voluntary arrangement (CVA), or if your company requires closing for good, creditors voluntary liquidation (CVL).
For further reading on the Director’s position, read ‘Can HMRC Hold Directors Liable For Tax‘.
Therefore, to move forward dealing with your company’s debt, why not meet the HBG Advisory team, who will help you give confidential advice in the privacy of your home with a virtual meeting.
“Shed no more tears over Vat.”
Examine the reasons behind your incapacity to pay VAT.
If you’re unable to pay your company VAT or any other tax liabilities, you need to expose the root cause hampering your actioning payment. Once you understand the issue, you may resolve the situation in one way or another.
Perhaps your creditors fail to pay their invoices on time, leaving your short-term cash flow going dry. If this is the case, focus on chasing these defaulting payers and checking your current collection strategy and payment terms for the future.
However, if your business is spending more money than it has earned, you need to assess whether the company is still profitable. So, act swiftly and arrange a meeting with a licensed insolvency practitioner to evaluate your company’s situation and advise on options. They may request formal negotiations with creditors under a Company Voluntary Arrangement (CVA) or explore closure options, like a Creditor’s Voluntary Liquidation, if debt levels are abnormally high.
If your business cannot pay HMRC due to the Coronavirus, your company will not incur paying the penalty. Therefore,:
- Suspend VAT payments due before June 30th 2020, and pay them any time up to March 31st 2021 or
- Further, defer your self-assessment on account payable July 2020, until January 31st 2021.
To ensure a formal agreement, negotiating with the HMRC, and therefore establish contact with the HMRC coronavirus (COVID-19) helpline (0800 024 1222) (View Coronavirus Business Help) if your company is unable to pay, as a consequence of the coronavirus pandemic. Remember, you will have to pay this over to HMRC. So ensure you keep it safe.
Can’t pay VAT due to being Self Employed?
If you are self-employed and have incurred lost income, attributable to the coronavirus, you possibly may claim a grant through the coronavirus (COVID-19) self-employment income support scheme.
Can You Pay The VAT Late?
Under normal circumstances, the HMRC is eager to collect VAT, as it differs from other taxes. You collect tax on behalf of the HMRC, not like income tax on your income.
During the COVID19 Pandemic, however, late VAT collection has relaxed to aid companies’ cash flow. It though must be paid by January 31st 2021. (See above)
Being a Director and Unable to Pay VAT.
When a limited company director discovers they cannot pay VAT, this should raise red flags, as it is a clear indicator that the company is insolvent. Being unable not to pay the VAT, can have severe consequences for the business and its directors.
It is then that you should check your cash flow moving forward. Either negotiation needs to be started with the HMRC to bring your VAT arrears up to date, or contact a licensed insolvency practitioner for advice so you, as a director, may carry out your fiduciary duties and protect creditors from increasing the business debt any further.
Cash flow stems mainly from how fast debtors pay and how good the debts are. Consider the following options:
- Get on the phone to your customer immediately;
- Chase regularly for payment – Court help;
- Put your customer on hold immediately;
- Charge with late payment interest;
- Agree to a repayment plan.
Can’t Pay VAT Arrears?
What are the consequences of my business having Vat Arrears?
When your business falls behind paying VAT and into arrears, the HMRC will therefore wish to ascertain the reason for the arrears. Usually, in most cases, insufficient working capital or deliberate avoidance of paying VAT.
If your business is experiencing issues with cash flow and is unable to pay, do not panic. Options are available to help you, from entering into administration to negotiating a time to pay arrangement with HMRC.
Don’t continue trading when unable to pay tax. Your company may be insolvent due to its VAT bill and insufficient cash. You therefore need to take immediate action to protect the company and its creditors.
HMRC’s normal response to VAT non-payment is, in most cases, to pay more attention to companies that fall behind, and if payment is overdue, to deliver the company a distraint letter requiring immediate payment of VAT arrears.
HMRC VAT Payments
Paying VAT as and when it falls due is essential for a business to trade solvents and avoid fines.
We detail below areas often asked from us.
Keep in regular contact with HMRC and your accountant if unclear.
Once your VAT return is submitted, you either owe or await a repayment. The simplest way to pay is by a Direct Debit.
VAT payments made are required to be cleared funds in HMRC’s account by the payment deadline.
Telephone banking (Faster payments) offers the next day or the same day payments.
Direct Debit, BACS, debit or credit cards, and bank or building society payments take three days to clear.
What to do and when to do it?
When registered for VAT, you have to insure you complete VAT returns, submit them, and ensure payment is made when due.
Therefore, you must understand VAT requires payment on time to avoid expensive VAT fines.
Deadlines for Filing and Paying your VAT Return?
When a business trades within its cash flow, it will submit its VAT returns quarterly or annually.
- Pay VAT Quarterly – submitting your VAT returns quarterly, online with HMRC, you are required to insure your VAT liability is paid by midnight of the one calendar month and seven days period after online.
- Paying VAT annually – If you have an Annual Accounting Scheme for VAT. You submit your VAT return annually, and are required to perform on account payments towards your annual VAT bill. When operating the Annual Accounting Scheme, your VAT return needs to be filed and paid in full, two months after your annual accounting period.
Can I Pay My VAT Bill In Installments?
YES. You need to arrange to pay monthly directly with HMRC. Do not assume you can until agreed.
You may be required to account and pay for VAT monthly by the HMRC. Usually, this is when, in a previous business, you have struggled to maintain payments. It may also be that your business has often exceeded the threshold for quarterly payments.
A notice of assessment of tax is sent to you by HM Revenue and Customs (HMRC). You or your business have received the assessment because you have failed to send in a completed return for the quarter-end, along with any payment due.
You need to complete and forward your VAT return, and any payment due which corresponds to the assessment date, without delay.
The assessment of VAT due is too low. You must advise HMRC within 30 days. If you fail to do so, penalties apply.
If too high, you are unable to appeal. You need to complete and forward a VAT Return along with the payment.
Borrowing money is not always the answer. What if you are trading at a loss? The cost of borrowing will increase expenses and unforeseen losses. You may have to sign personal guarantees, and either expose yourself financially or increase your liability.
Tourist Sector Requesting Short Term help with VAT?
A temporary VAT cut will take effect on accommodation and attractions. From July 15th 2020 to January 12th 2021, to support businesses and jobs, the reduced (5%) rate of VAT will apply to supplies of accommodation and admission to attractions across the UK. Further guidance on the scope of this support will be published by HMRC soon.
What is VAT?
Why and when do I register?
Value Added Tax (VAT) is a form of indirect tax, levied on businesses who trade within the UK by the HMRC. It shall apply to a company or individual when the turnover exceeds or expects to surpass £85,000 in any 12 month trading period. Businesses must be VAT registered once the threshold reaches. You may though register voluntarily for VAT beforehand.
When registered, the business or individual must conform to VAT regulations moving forward.
Who should register? Click on HM Gov Link
VAT Bill – When does payment fall due?
VAT returns require electronically filing, usually every three months. You submit your business return within one calendar month and seven days following the end of an accounting period. The payment for VAT needs to be paid no later than the last seventh day of the month following month-end after quarter-end. If not, the businesses are subject to a fine.
Your quarterly VAT return shows:-
- Net total purchases and sales
- Sum of VAT due to be paid to HMRC
- VAT reclaimed from HMRC.
- VAT refund from HMRC.
How do I get out of Paying Vat?
The only way to not account for VAT is not to be registered, because your turnover is below the annual VAT threshold of £85,000.
Common VAT Problems?
Unexpected large VAT Bill?
Unexpected huge VAT bills may cause severe financial issues for businesses when they can’t pay VAT. Whether it’s been a retrospective calculation by HMRC or a misunderstanding by yourself, this is something that needs to be dealt with urgently. Remember. A huge bill means high turnover. You need to investigate why you do not have the cash. Is your business viable? A high VAT suggests it is, so why have you no cash? Are hidden overheads absorbing liquidity?
If you receive a VAT estimate and can’t pay VAT, contact the VAT and get your completed VAT returns in, as it is the best way to resolve Negative Cash Flow issues.
If you avoid paying your Vat because you can’t pay Vat, still send your completed return in and negotiate with HMRC. Receiving an estimate may only compound your problem.
Errors by my Accountant?
Even though an accountant manages the company’s finances, directors are responsible for ensuring that the VAT returns submitted to HMRC on time accurately reflect the company’s tax affairs and liabilities.
If your accountant has made a mistake? You, as a director, are responsible for the accuracy of your VAT return. So, any missed previous payments or under-payments are still your responsibility. The HMRC does not regard a mistake by the accountant as a legitimate justification for your companies’ late or non-payment HMRC VAT liabilities.
Ensure you are clear on what is happening with your VAT account at all times.
Forgetting to cancel Registration for VAT.
We regularly identify businesses that have forgotten to cancel registration of VAT. The may result in an unexpected VAT debt burden on the company. If this is the case, contact the VAT helpline as soon as possible to resolve. The numbers are detailed below.
If you still have a problem, contact HBG Advisory, who may help.
Failure to Register for VAT?
We view this regularly. It is one of the most common mistakes made by businesses. Failing to register can cause significant business issues, and the VAT bill can rise exponentially with fines and penalties implemented by HMRC. If this is the case, talk to the VAT and arrange a Time To Pay arrangement. If not, contact HBG Advisory.
Annual VAT Accounting.
For further help, READ: Annual VAT Accounting
HMRC VAT Late Payment & Arrears?
Example of a Debt Enforcement Letter chasing unpaid VAT
Surcharge and Can’t Pay my VAT?
When a business is in arrears and can’t pay VAT, or it files its VAT return late. Then, HMRC often applies surcharges. These surcharges can increase the business’s financial burden, making it harder to pay VAT and get back to a level footing. In turn, this can cause financial difficulties for the company. Again, keep talking to HMRC,
Ask for help.
Surcharges you pay to VAT HMRC?
A surcharge is calculated as a percentage of VAT outstanding on the accounting period’s due date defaulted.
The surcharge rate charged increases each time your business defaults in the surcharge period.
This table, as per HMRC, details the charges your business defaults again within a surcharge period.
There is no charge with your first default.
Defaults within 12 months. Then a surcharge if annual turnover is less than £150,000.
Surcharge if yearly turnover is £150,000 or more.
2 in 12 months. No surcharge. Over £150,000. 2% (no surcharge if this is less than £400).
3 in 12 months. 2% (no surcharge if this is less than £400). Over £150,000. 5% (no surcharge if less £400.)
4 in 12 months. 5% (no surcharge if this is less than £400). Over £150,000. 10% or £30 (whichever is more).
5 in 12 months. 10% or £30 (whichever is more). Over £150,000. 15% or £30 (whichever is more).
6 or more in 12 months. 15% or £30 (whichever is more). Over £150,000. 1 5% or £30 (whichever is more).
The HMRC may charge you a penalty of up to:
100% of any tax you may have under-stated or indeed over-claimed.
30% of an assessment if the HMRC sends you one that’s too low, and you did not advise them of the error within 30 days
£400 for submitting a paper VAT Return without exemption.,
Data above by OGL
Distraint and a Creditor’s Voluntary Liquidation.
When a business can’t pay VAT, owing to HMRC, and therefore falls overdue. The HMRC may send a Distraint order letter, demanding immediate payment for sums owed. Failure to comply however, means an enforcement officer attending with a distraint order. At this point, you must protect the company; its assets and the interests of creditors. Seek immediate advice from a licensed Insolvency Practitioner, who can offer various quick solutions.
To consider a Time to Pay Scheme. HMRC then requires the following:
- Business tax reference number
- Name of your business.
- Company Number (If Limited or LLP).
- Duly authorised contact name.
- Full trading business address. (Accounts)
- Telephone number & mobile.
- Details of the outstanding tax.
Then have to explain why:
- The business cannot bring the tax up to date.
- What if any funds are available to pay an amount on account?
- What actions you have taken to raise funds for the business to pay the TAX debt.
- The time required to bring outstanding TAX up to date?
- Consideration of past payment records. Have you had Time to Pay before?
Finance for VAT
Consider a short term loan to bring working capital into your business to meet immediate cash flow requirements. However, interest charges are usually relatively high for short-term loan facilities, but maybe less than the penalty charged by HMRC.
Speak to your bank. Enquire as to eligibility for an overdraft facility.
Are you using an interest-free credit card?
HMRC charges a fee for card payment, though it is lower than penalty charges. HBG DO NOT advocate credit cards to pay other debt.
Explore short term finance. Examples are IWOCA, EZBOB and The Funding Circle for short-term financing.
VAT & When Should You Start to Worry?
When you realise you owe VAT, have not registered for VAT, or have fines for not paying VAT, you must react quickly. Therefore, contact HMRC to agree to an arrangement. You will avoid hefty fines compounding the financial burden. Remember, the HMRC will never go away and will require resolving.
Call us today on 0800 612 5448 to arrange how we may help deal with HMRC pressures and eradicate the trouble of agonising about taxes when unable to pay the HMRC.
VAT HMRC PAYMENT HELPLINE
If you can’t pay VAT, the first port of call is to contact the “Business Payment Support Service (BPSS). They are a Payment Helpline for businesses who cannot pay their VAT and are struggling to secure their subsequent payments to HMRC.
You need to call the “BPSS” at the HMRC if you can’t pay in full before your payment deadline.
You can contact the “BPSS” on 0300 200 3835.
The HMRC are open:
Monday to Friday, from 8 am to 8 pm.
Saturday, from 8 am to 4 pm.
HMRC Offices around the UK
When you can’t pay VAT, View HMRC VAT Help on:
Complaining to HMRC – VAT
If you wish to complain to the HMRC regarding your VAT view – COMPLAIN ABOUT HMRC
Vat deadline calculator
If you require help when you can’t pay your VAT?
View: HMRC VAT
Our team has extensive experience dealing with HMRC for businesses who can’t pay the VAT,
Whatever. ACT FAST!
Please call us on 0800 612 5448 for 100% confidential, free initial, no-obligation advice.
Do not struggle.
If you are unable to pay your VAT. Then consider a:
- “Creditors Voluntary Liquidation”
- If urgent, then consider an Administration to protect value in assets and jobs.
Bailiff – Enforcement Officer Visit
When visited by an HMRC bailiff, you need to understand what they can take goods, your property?
Usually, HMRC is the most common creditor of business trading in the United Kingdom. If a company falls behind in making payment to any part of HMRC, this may present a business problem. The HMRC does not erase failing regular missed or late payments. If stretched, they will send in bailiffs if the situation remains unpaid or agreed.
Typically, HMRC does not instruct bailiffs at the first stage of a late or missed payment. However, HMRC will issue reminders, new payment fines and interest charges, therefore encouraging settlement early. Once this process starts, you should make immediate contact with HMRC (as detailed above) and arrange a solution. The longer you ignore the problem; the less likely your chances are of reaching a compromise with HMRC.
Remember, HMRC will only instruct Bailiffs as a last resort when all else has failed.
Is it a Criminal Offence to Avoid Paying VAT to HMRC?
Making a late payment to HMRC for VAT is not a criminal offence. You need to ensure regular contact is maintained with HMRC, highlighting that they are aware of your circumstances, helping, so they do not need to escalate collection or enquiry.
Sometimes, however, when arrears reach a specific trigger point, the HMRC, therefore, will send a ‘Notice of Requirement to Pay a Security for VAT’. Therefore, a deposit is required, acting as a bond to secure future debt. Security bonds have a 30-day payment term. Failure to deposit this with the HMRC is considered a criminal offence, and HMRC will instruct the court for collection.
For further reading, please view: Can HMRC hold directors liable for outstanding tax?
Every effort should be made to avoid this, and should it happen, then urgently discuss this with your accountant or HBG Advisory. 0800 612 5448.
Allowances not considered?
The VAT surcharge system for late or non-payment can cause a business to suffer significant fines/penalties for failing to account for VAT to the HMRC on the deadline date. Therefore, you must make immediate contact with HMRC once you realise you cannot make the VAT payment. Then you can negotiate an agreement for an extension to settle the debt owed.
Please contact us today! We offer initial FREE advice on how we may help you ensure your struggling business moves forward with less pressure and a more secure foundation for business growth.
Call 0800 612 5448. HBG Advisory will help when you are unable to pay your VAT and remove HMRC pressure today!