VAT Arrears Advice and Support

VAT arrears advice and support. Author: John A Waller. Reviewed: June 21st, 2024.

Does your business require VAT arrears advice and support? If so, the sooner you seek help, the better.

What If Your Company Has Financial Difficulties

In insolvency proceedings, HMRC ranks as an unsecured creditor for any outstanding Value Added Tax owed. If you’ve missed a tax deadline or know you won’t be able to pay your VAT liability on time, don’t panic. Just reach out to HM Revenue and Customs (HMRC) immediately. If you cannot pay your VAT in full, you may be able to set up a payment plan to pay it in smaller amounts over time. This is called a ‘Time to Pay’ arrangement.

However, be assured HMRC will not go away and pursue the debt if you fail to act! Ensure you understand how to deal with HMRC company debt as a director.

Paying my VAT, what if your company has financial difficulties? You can only set up a payment plan if HMRC thinks you will keep up with the repayments. If HMRC cannot agree on a payment plan with you, they’ll ask you to pay the total amount you owe.

Arrears of VAT and not having the ability are often signs of insolvency for a business.

The term “VAT” refers to ‘Value Added Tax’. HMRC collects it in the UK. However, the seller of goods charges the output tax to pay HMRC.

HMRC does not directly charge VAT.

Value Added Tax is an indirect tax the seller collects and then pays to HMRC minus any input it may claim.

Setting up an HMRC payment plan

Vat Arrears Advice and Support: Setting up an HMRC plan requires directors to act honestly and be able to maintain payment.

To set up a payment plan, you’ll need:

  • reference number – unique tax reference number
  • bank account details
  • any previous payments missed

You can set up an online payment plan depending on your tax type and how much you owe.

What is VAT?

VAT: Tax that businesses registered for VAT must add to the price of most goods and services they sell. They charge VAT on sales to other businesses and to the public.

It is the responsibility of the VAT-registered businesses to:

  • collect VAT from their customers for HMRC (Output Tax), and
  • claim back from HMRC the VAT they have paid on their business expenses (input Tax).

In addition, VAT-registered businesses must:

  • Issue VAT invoices to their customers showing the amount of VAT charged;
  • Maintain VAT records and
  • Deliver VAT returns on time to HMRC.

Do I have to register for VAT?

The taxable turnover figures disclosed apply from April 1st, 2024.

Only businesses that meet the government’s specified threshold for taxable turnover must register for Value Added Tax (VAT) with HMRC. However, if your business had a:

  • taxable turnover of more than £90,000 during the last 12 months, or
  • you expect your taxable turnover to exceed £90,000 in the next 30 days.

You must register for VAT. You must also register for VAT if you know that your taxable turnover will exceed this threshold. Remember that there are different rules for businesses based in Northern Ireland.

What about Zero Rated Goods

Businesses that mainly sell zero-rated items or exclusively deal with zero-rated items may be eligible to request an exemption from VAT registration from HMRC. For additional information on this topic, search ‘Exemption and partial exemption from VAT‘ at www.gov.uk.

Businesses can register for VAT, even if they sell zero-rated items. This means they can voluntarily participate in the VAT system, which may benefit their operations and financial management.

You can register for VAT if your business’s

  • taxable turnover was £90,000 or less during the last 12 months or
  • if you expect your taxable turnover to be £90,000 or less in  30 days.

If your business only sells goods and services exempt from VAT, you are not eligible to register for VAT. You can see more information about the specific goods and services and VAT rates by visiting www.gov.uk. Once there, you can search for “VAT rates on different goods and services” to get the required details.

Taxable turnover

Taxable turnover: The total value of all your business sales subject to VAT, excluding any VAT-exempt sales.

As a business owner, keeping a close eye on your monthly taxable turnover is crucial. Regularly reviewing whether the combined turnover for the preceding 12 months exceeds £90,000 is necessary, as this is the threshold for VAT registration. Failing to register for VAT can result in HMRC charging further penalties, which could increase your debt to HMRC and potentially lead to financial hardship for your business. Staying on top of your turnover ensures compliance and avoids adverse outcomes.

The Covid-19 Pandemic and VAT Deferral Scheme.

The UK government supported businesses struggling to pay VAT. However, the VAT deferral new payment scheme has now closed.

As soon as you know your business may not pay over the VAT collected, seek professional insolvency advice provided by HBG Advisory. By doing so, you, as directors, may consider many options to avoid surcharges.

HMRC commences chasing overdue VAT seven days after the payment is due. They will first send a letter notifying you of a demand. They will escalate the matter as time progresses, increasing your pressure to pay. However, HMRC remains not bound by constraints applying to ordinary creditors. They do not have to prove the legitimacy of the debt they consider owed.

HMRC has a proven structured escalation process, which moves from demain letters to visits from their officers, incurring penalties and fines. Directors should, importantly, maintain clear and regular communication with HMRC, allowing them to gauge their actions. If ignored, matters will escalate and possibly wind up a company once they have exhausted their collection methods.

Vat Arrears Advice and Support – Is early action required?

Prompting early action protects you as a company director, as it demonstrates your intent to resolve matters as a company director. Failure to do so will expose you personally to your limited company’s debts, should it be proven your insufficient care damaged creditors’ interest further. As a company director, it is essential to understand your director’s duties and responsibilities.

Avoid by early action, claims of:

HMRC considers the late or non-payment seriously. So, ensure you act quickly to resolve matters.

VAT Arrear Advice and Support – VAT Payment and Return submission 

When registered for VAT, your VAT return must be submitted, and any invoice paid by one month and seven days after the period in which it applies. For example, if VAT is payable for the quarter ending December 31st, your VAT return must be submitted to HMRC, and the payment must clear funds in HMRC’s account no later than January 7th. Failure to do so generates a daily interest of 2.75 per cent. 

So what are my options?

  1. Pay the arrears;
  2. Can’t pay VAT options;
  3. Raise a loan on the business to pay the arrears;
  4. Arrange a Time to Pay Scheme with HMRC;
  5. Seek advice from a licensed Insolvency Practitioner and consider:

If you consider your limited company no longer viable as a going concern, you may wish to consider a:

  1. Creditor’s Voluntary Liquidation or
  2. Compulsory Liquidation & A Winding-up Petition.

For further in-depth reading, please view Can’t pay VAT! What happens next?

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