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Reviewed by
Chris Andersen
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Reviewed by Chris Andersen

Chris became an Insolvency Practitioner in 2014 and is currently regulated by the IPA.

He is experienced in contentious insolvency with excellent analytical skills and strong knowledge of both general and technical insolvency matters.

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2nd May 2024

Read our complete guide to the options available to a company that can’t meet its VAT liabilities, plus the likely consequences of default.

Contents
  1. What are my Options When I Cannot pay the VAT?
  2. What Will Happen if I Can’t Pay VAT on Time?
    1. You’ll Receive a VAT Notice of Assessment
    2. HMRC will Charge Payment Penalties for Late VAT
    3. HMRC Will Charge Interest
    4. HMRC May Opt for Distraint / Bailiffs
    5. HMRC Might Begin Legal Action
    6. What if my Company has Multiple Debts in Addition to VAT?
    7. Should I be Worried About Personal Liability for VAT Arrears?
    8. Where to Get Help if You Can’t Pay HMRC?
  3. FAQs About Not Paying VAT

What are my Options When I Cannot pay the VAT?

VAT arrears is typically the tax debt HMRC treat with the least flexibility so, if you can’t pay, you’ll need to take prompt action.

As a director of a company, you have four practical options in this situation:


If you don’t already have an arrangement in place, HMRC is generally open to instalment plans, that help the company pay what it owes over a period of time. A Time to Pay Arrangement (TTP)is typically allowed for 12 months; however, HMRC will consider longer payment arrangements in some instances.

» MORE Read our full article on time to pay arrangements

Emergency financing may satisfy your cash flow requirements, provided your limited company can handle the repayments. Your bank may offer you a loan or overdraft, or perhaps you can raise capital by negotiating with suppliers for extended payment terms or selling assets to raise cash.

One possible solution to VAT arrears is a company voluntary arrangement. This is a business rescue mechanism in which an insolvency practitioner proposes a structured repayment plan with creditors to repay a percentage of the debt over time, with the remainder written off at the end of the process.

HMRC are open to these, but the CVA proposal must be voted into existence by 75% of creditors.

For larger companies, going into administration is another option that protects limited companies from creditor pressure or legal action during a period of restructuring.

For directors who feel VAT debts are insurmountable, closing the company via voluntary liquidation is one option to consider.

Voluntary liquidation is a structured process of closing a company with debts. It is done with the help of a licensed insolvency practitioner to ensure fair play for creditors.

» MORE Read our full article on Voluntary Liquidation

What Will Happen if I Can’t Pay VAT on Time?

If you are unable to pay your VAT on time, here’s what will happen:

You’ll Receive a VAT Notice of Assessment

A VAT Notice of Assessment (NOA) is the first letter you’ll receive if you’re in arrears. Its is a formal document indicating HMRC believes there has been an underpayment or incorrect VAT declaration.

The notice will specify the amount of VAT HMRC calculates as due, along with any penalties and interest accrued due to the underpayment.

Upon receiving an NOA, the business has several options:

  • accept the assessment and pay by the due date
  • appeal within 30 days (providing evidence if you feel there’s been an error)

HMRC will Charge Payment Penalties for Late VAT

HMRC now run a penalty points system whereby you’ll be charged a penalty point for each VAT return you submit late, and charged £200 once you reach this threshold.

For businesses who submit VAT returns quarterly, this threshold is 4 points. Once you’ve reached that threshold you’ll be charged an additional £200 for each late payment. You can read HMRC’s guidelines here for additional details.

HMRC Will Charge Interest

In addition to the late payment penalty, HMRC will also charge interest on the outstanding VAT amount from the date the payment was due until the date it is paid in full.

Currently, this is set at the Bank of England base rate plus 2.5%. (Read HMRC’s current interest guidelines here.)

HMRC May Opt for Distraint / Bailiffs

If HMRC feels they are being ignored, or when they feel a situation has been unresolved for too long, they may instruct third-party bailiffs as well as their own enforcement officers to recover goods which can later be sold in order to pay off your debt.

HMRC will first issue a Notice of Enforcement, which alerts you to the outstanding debt and provides at least seven days’ notice before any action to seize assets is taken.

If the debt remains unpaid after the notice period, enforcement agents have the authority to seize company assets equivalent to the value of the outstanding VAT debt, plus any associated costs.

>>Read our full article on HMRC Bailiffs

HMRC Might Begin Legal Action

If you continuously fail to pay your VAT liabilities, HMRC may take legal action against you or your business. This could include issuing a County Court Judgment (CCJ) or even initiating bankruptcy or liquidation proceedings in severe cases.

It’s important to seek expert help and advice on VAT issues if they get out of control. Please do contact one of our team for a friendly, no-obligation consultation.

cant pay VAT

What if my Company has Multiple Debts in Addition to VAT?

If your company is grappling with multiple debts in addition to VAT, it’s a strong indicator of insolvency. As a director, this means you’ll need to tread cautiously and with a clear understanding of your responsibilities to prioritise creditor interests as soon as you suspect the company owes more than it can pay.

Specialists like ourselves at Company Debt can provide critical insights and guidance. An informal conversation with one of our experts will help outline the options available to you, without obligation.

Should I be Worried About Personal Liability for VAT Arrears?

Yes, under certain circumstances, directors can be held personally liable for VAT arrears.

Insolvency situations typically trigger a detailed investigation of the actions taken by the directors leading up to the financial collapse and the creation of a directors’ conduct report.

During this investigation, the insolvency practitioners will assess whether directors continued to accrue VAT liabilities knowing that the company would not be able to meet these debts. If it is found that the directors failed to fulfil their fiduciary duties or engaged in wrongful or fraudulent trading by incurring debts when they knew the company was unable to pay, directors can be asked to pay either some of all or the losses to creditors personally.

Where to Get Help if You Can’t Pay HMRC?

If you’re struggling to pay your tax liabilities to HMRC, it’s crucial to seek professional help as soon as possible. Ignoring the problem or failing to take action can lead to severe consequences, including penalties, interest charges, and potential legal proceedings.

At Company Debt, we understand the stress and uncertainty that comes with financial difficulties. That’s why we offer friendly, confidential advice to help you navigate this challenging situation. Our experienced insolvency practitioners are here to guide you through the available options and find the best solution for your unique circumstances.

Don’t hesitate to reach out to us immediately during working hours via our live chat. Alternatively, you can call 0800 074 6757 to speak directly with an insolvency practitioner who will listen to your concerns and explore the most appropriate course of action.

We’ve helped 1000’s of company directors through stressful circumstances.

FAQs About Not Paying VAT

It’s unlikely that HMRC will reduce your VAT bill, but they may be able to offer you a payment plan to help you manage your cash flow.

If you cannot pay your VAT bill at all, you should seek professional advice from an accountant or a debt specialist such as Company Debt. We can help you understand your options.

Failing to pay VAT over a prolonged period can have serious consequences. This may include a VAT surcharge, civil action to recover the debt, and potential insolvency proceedings in severe cases.

HMRC can take action against your assets for unpaid VAT, which may involve seizing assets or property to cover the owed amount. In extreme situations, HMRC could also pursue civil court action, leading to additional financial and legal implications.

Failing to pay VAT over a prolonged period can have serious consequences. This may include a VAT surcharge, civil action to recover the debt, and potential insolvency proceedings in severe cases.

HMRC can take action against your assets for unpaid VAT, which may involve seizing assets or property to cover the owed amount. In extreme situations, HMRC could also pursue civil court action, leading to additional financial and legal implications.

If your company goes into liquidation while owing VAT, the outstanding VAT becomes part of the company’s total debt to be addressed in the liquidation process. Creditors, including HMRC, will be paid out of the company’s remaining assets, if available, following the legal hierarchy of debt repayment.