Receiving a letter regarding an overdue VAT payment can be a cause for concern for any business. Paying VAT (Value Added Tax) is a crucial component of a company’s financial obligations, and failing to meet these obligations can have serious consequences.
However, instead of panicking or ignoring the situation, it is important for businesses to take immediate action to rectify the situation.
In this post, we will provide a guide on what a business should do when faced with a letter about an overdue VAT payment, outlining the steps to address the issue effectively.
What you should do when you receive an overdue VAT letter
Review the letter
Upon receiving the letter, the first step is to thoroughly review its contents. Pay close attention to the details, including the amount owed, due date, and any associated penalties or interest.
Cross-check this information with your records to ensure its accuracy. Mistakes can happen, and it is important to identify any discrepancies before proceeding further.
Assess your financial position
Once you have a clear understanding of the overdue VAT payment, assess your business’s financial position.
Evaluate your cash flow and determine if you have sufficient funds to pay the outstanding amount. If not, consider available options such as short-term loans or exploring payment plans that allow you to spread the payment over a set period.
It is essential to ensure that your financial commitments can be met promptly to avoid further penalties or legal actions.
Contact HMRC
After reviewing your financial situation, reach out to HMRC to discuss the overdue VAT payment.
Open lines of communication are vital in such cases. Inform them about your intentions to resolve the issue and request an extension if needed. HMRC may be willing to work with you to find a suitable payment arrangement.
You can call the HMRC Debt Renumeration line on 0300 322 9494
Your options if you are behind and unable to pay your VAT arrears
Time to pay arrangements
If you find that you are unable to repay the overdue VAT amount in full, you can explore the option of a Time To Pay (TTP) arrangement with HMRC.
A TTP arrangement allows you to spread the payment over an extended period, typically in monthly instalments.
It provides breathing space to manage your finances effectively and meet your tax obligations.
Contact HMRC to discuss the possibility of setting up a TTP arrangement, providing them with details of your financial situation and a proposed repayment plan.
Does your company qualify for a time to pay arrangement?
Does your company qualify for a Time To Pay arrangement? Find out with our online Time To Pay Test →
Pre-pack administration
In cases where your business is facing severe financial difficulties and cannot repay the overdue VAT, you may consider a pre-pack administration.
This involves selling the assets of the business to a new company while simultaneously entering into administration.
The new company can continue trading with a fresh start while the old company is wound up.
It is crucial to seek professional advice from insolvency practitioners or business recovery specialists to evaluate the feasibility and implications of a pre-pack administration.
Company voluntary arrangements
Another option for businesses struggling with an overdue VAT payment is a company voluntary arrangement (CVA).
A CVA is a formal agreement between the business and its creditors, outlining a repayment plan that is affordable for the company.
It allows the business to continue trading while repaying debts over an agreed period. Seeking assistance from insolvency practitioners or advisors experienced in CVAs can help guide you through the process, negotiate with creditors, and draft a proposal that addresses your financial situation.
What to do afterwards
Review internal processes
Once the immediate issue has been resolved, take the opportunity to review your internal processes to prevent similar situations in the future.
Evaluate your accounting and financial systems, ensuring that they are accurate and up to date.
Implement effective bookkeeping practices, conduct regular reconciliations, and consider employing automated systems to streamline VAT reporting and payments.
Make sure to address the problem quickly
Receiving a letter about an overdue VAT payment can be stressful for any business.
However, by promptly addressing the issue and taking appropriate action, you can minimise potential penalties and maintain a good relationship with the tax authority.
Remember to review the letter carefully, assess your financial position, and engage in open communication with HMRC.
Make the payment as soon as possible, explore alternative arrangements such as Time To Pay, pre-pack administration, or company voluntary arrangements if necessary.
Finally, take this experience as an opportunity to improve your internal processes to prevent future VAT payment issues.
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
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