What Happens if I Can’t Pay the VAT?

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

If you are unable to pay your Value Added Tax (VAT) on time, here’s what may happen:

1. Late payment penalty: HM Revenue and Customs (HMRC) will typically charge a late payment penalty if you miss the VAT payment deadline. The penalty is calculated as a percentage of the unpaid VAT amount and increases the longer the payment is overdue.
2. Interest on late payments: 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.
3. Potential for 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.
4. Impact on VAT registration: If you repeatedly fail to pay VAT on time, HMRC may consider deregistering your business from the VAT system, which could have significant consequences for your operations.

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.

Does HMRC issue Fines or Penalties for Late VAT?

Yes, HMRC has several ways of fining for late VAT submissions, beginning with a penalty points system which they outline here.

HMRC will allocate 1 point for each missed filing deadline. Points expire after a specified period unless the penalty thresholds are exceeded.

Penalties are charged when accumulated points reach certain thresholds, which vary based on the submission period (Annual – 2 points, Quarterly – 4 points, Monthly – 5 points). Once these thresholds are reached, a £200 penalty is charged for each subsequent missed deadline.

In addition to the points there are specific fines, as follows:

• Up to 15 Days Late: No penalty.
• 16 to 30 Days Late: 2% penalty of the outstanding amount at day 15 (for 2023, this applies only for payments more than 30 days late).
• 31 Days Late or More:
  • Immediate 2% penalty of the amount outstanding at day 15.
  • Additional 2% penalty of the amount outstanding at day 31.
  • Total immediate penalty: 4% if nothing has been paid by day 31.
  • Daily Penalty: From day 31, a daily penalty calculated at an annual rate of 4% on the outstanding amount.

Finally, there is interest on overdue payments as follows:

• Interest Charge: Interest is charged from the first day the payment is overdue until it’s paid in full at the Bank of England base rate plus 2.5%.

Can I pay my Outstanding VAT Debt in Instalments?

If you’re unable to pay your VAT on time, HM Revenue and Customs (HMRC) offers a flexible solution through a Time To Pay (TTP) arrangement. This plan allows you to spread your VAT payments over an extended period, easing the pressure on your cash flow.

To initiate a TTP arrangement, contact HMRC promptly to discuss your financial situation. You’ll need to provide details about your income, expenses, and what you can afford to pay each month. The goal is to negotiate a realistic repayment schedule that is manageable for you while satisfying HMRC’s requirements.

It’s important to approach HMRC before your payment is due. Negotiating after the deadline can complicate the process and may result in less favourable terms. Remember, a TTP arrangement doesn’t exempt you from interest, which will continue to accrue until the debt is fully settled.

Once a payment plan is in place, it’s crucial to adhere to it. Failure to meet the agreed instalments can result in the cancellation of the arrangement and potentially more severe penalties. During this time, ensure you also meet all current tax obligations to avoid further complications.

Why Can’t You Pay VAT? Understanding the Issue

If you’re the director of a limited company, not being able to make a VAT payment may indicate that your company is insolvent, and you should seek immediate, professional advice.

Continuing to trade whilst insolvent can make you personally liable for company debts, as per Section 214 of the Insolvency Act. ^[1] Trusted Source – UK Government Legislation – Section 214, Insolvency Act 1986

If you continue to miss VAT payments indefinitely, HMRC may take legal action against your business, which can result in a County Court Judgment (CCJ) or even insolvency. Your business’s credit rating will be impacted, which may affect your ability to borrow money in the future.

Failing to pay VAT can also damage your relationship with suppliers and customers. Suppliers may be reluctant to do business with you if they know you have a history of late payments. Customers may lose confidence if they hear that you’re facing financial difficulties.

In summary, it’s important to take immediate action. Seek professional advice and consider all your options to find a solution that works.

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.

What are my Options When I Cannot pay the VAT?

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

(1) Arrange a Time to Pay (TTP) agreement with HMRC. This type of informal arrangement 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

(2) Getting a VAT loan or overdraft from your bank – 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.

(3) Rescue Options such as a Company Voluntary Arrangement (a structured repayment plan with creditors for a percentage of the debt) or Administration may be another option that protects limited companies from creditor pressure or legal action during a period of restructuring.

(4) Close Your Company via voluntary liquidation if it has no viable future. This would be done by insolvency practitioners like ourselves; you cannot liquidate a company yourself. Closing a company means that, typically, corporate debts end with the company.

» MORE Read our full article on Voluntary Liquidation

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

References

The primary sources for this article are listed below, including the relevant laws and Acts which provide their legal basis.

You can learn more about our standards for producing accurate, unbiased content in our editorial policy here.

1. Trusted Source – UK Government Legislation – Section 214, Insolvency Act 1986