What to do if You Can’t Pay Your VAT Bill

VAT arrears and insolvency

As a director of a limited company, if you can’t make a VAT tax payment then it can put you in a very difficult situation, it can show that your company is insolvent and that is your indicator to seek immediate advice.

VAT notice of assessment

If you are unable to pay your VAT tax bill, and don’t make the payment in time, then you will receive a letter from HMRC which is known as a ‘notice of assessment’. The document outlines how much they think you owe them in tax debt, and then they give you the opportunity to respond within 30 days.

You might think that because you can’t repay, you don’t have to follow the steps but it is still worth submitting your quarterly VAT return as normal. This shows HMRC that you are following the process and it could work in your favour when you speak to them.

If you are unable to pay HMRC the tax you owe, then it is important to be efficient and practical about your options. VAT money is the governments, so HMRC will pursue it aggressively.

Your first priority should be to communicate with HM and Revenue, they do have options available for you but you need to act fast. When preparing for your call with HM Revenue and Customs, they will want to know the following, so make sure you are prepared:

• VAT reference number
• The turnover and expenditure of your business
• Cash flow forecasts
• Assets of the business
• Reason why you can’t make the VAT payment
• What you plan on doing to ensure the VAT liability can be paid
• How much VAT you can pay immediately

Time to Pay arrangements

HM Revenue & Customs may consider a Time to Pay Arrangement with your business, it is important to note though that this doesn’t mean they will reduce the outstanding debt but they may consider it to be repaid over a period of time.

The time period for paying the debt back can vary between three and six months and on occasion, the arrangement can last up to twelve months.

Agreeing a Time to Pay Arrangement isn’t a get out of jail card, you will still be charged interest on any overdue amount, but it does mean that you will avoid any further late payment penalties.

What could happen if it happened again?

Once your Time to Pay Arrangement has been accepted, it is important that you then continue to keep up to date with other taxes.

If you fail to do this, it could result in the arrangement failing and then HMRC could issue a winding up petition against your company or present a bankruptcy petition if you are a sole trader.

Other possible options

Business Funding – Emergency financing can be an option for satisfying your cash flow requirements, so your company can handle the repayments a lot easier.

Rescue Options – These are not the nicest of options but can sometimes be the only option. A Company Voluntary Arrangement is a structured repayment plan agreed with creditors for a percentage of the debt.

Putting your business into administration could also be another option, this protects your company from creditor pressure or legal action.

Close Your Company – closing your company via voluntary liquidation can be the only option if you see no viable future. You do have to have this done by insolvency practitioners, it is not something you can do yourself.

Need to speak to someone?

If your company is struggling with unmanageable HMRC debts, poor cash flow, or an uncertain future, you are not alone.

We speak to company directors struggling with the same issues as you every single day, and we are here to give you the help and guidance you need.

Call our team for free, no-obligation advice today on 0800 975 0380 or book a free consultation