“My Company Can’t Make an HMRC VAT Tax Payment – What Can I Do?”

VAT Arrears, Time to Pay and Problems Making a VAT Payment

If you and your company are having VAT problems and can’t make an HMRC VAT payment then it is likely to be a symptom of something going wrong within the business. Whilst this may be stating the obvious, there are many business owners who view VAT arrears as being a normal part of managing money in a company and this is not the case. Although HM Revenue and Customs are a common creditor in many insolvency situations, not paying HMRC VAT is a particularly risky business practice and could eventually lead to the downfall of a limited company.

If you are a sole trader then there is no difference between owing personal debts and business debts; they are one and the same and you may be considered insolvent which could leave the family home vulnerable.

As far as directors of a limited company are concerned, owing taxes and not being able to make a VAT payment may well provide a clear indicator that the company is insolvent. Continuing to trade whilst insolvent can make the director personally liable for company debts.

Most Common VAT Payment Problems

Believe it or not, the most common mistake when businesses cannot make their VAT payments is not registering for VAT itself, due to having underestimated the performance of the business when trading in its early years. Unfortunately, the shock of a relatively large and unexpected HMRC VAT bill can cause huge problems to the company’s cash-flow as HMRC will want the VAT calculated retrospectively.

Another common error is not de-registering for VAT for whatever reason. In such circumstances, the tax burden when the company’s revenues are falling can be dramatic. If you are falling behind and can’t pay VAT then you can learn more about this on the HMRC website.

Either one of these ‘mistakes’ can result in a compliance visit from the VAT investigations team to complete an audit check of what is being asserted.

Can't Pay VAT Tax Bill?

Already Late With Your VAT Payments and in Arrears?

If you file your HMRC VAT returns late and you are in arrears then you may receive a surcharge which will increase the debt burden further. If several late payments are made, a further penalty surcharge may be applied. For those payments that are overdue by a lot, HMRC may send a distraint letter demanding immediate payment of the VAT owed. Keep all VAT rebates up-to-date to reduce any tax liability, particularly any bad debt claims.

HMRC also has a business payments support service can be very helpful, so you should contact them to see if they can assist you with your VAT payment problems. Before you contact the support services make sure you are prepared, as they will want to know the following:

  • Why you cannot make your VAT payment;
  • What you are doing to raise the funds to pay the VAT bill that HMRC is owed;
  • What, if anything, you can pay immediately;
  • How long it will take to pay the balance of VAT owed.

If you find yourself in a situation where you can’t pay VAT, HMRC’s response will depend on your history with them – for example, whether or not there have been previous ‘arrangement’s’ and what the results were. This is so they can assess just how likely you are to make your HMRC vat payment. If you are entitled to HMRC tax rebates these will rarely be paid and you should bring them to the attention of the ‘support service’ so they can be taken into consideration.

If you are a sole trader you may be asked to provide an income and expenditure document. If you are a director, a cash-flow forecast and other relevant documents will be needed to support your case.

There may be interest added to any late payments of tax and contacting HM Revenue and Customs quickly may prevent further penalties being applied.

If you suspect that your business is insolvent seek advice from a licensed insolvency practitioner to see whether the business can be salvaged and can continue trading.

Time to Pay Arrangements

If you are already part of an HMRC VAT time to pay arrangement then you should notify that office immediately as any failure to do so may result in the ‘arrangement’ going into default. The basis for this decision is that any VAT time to pay arrangement with HMRC is agreed on the basis that all other taxes are paid promptly when due.

Any failed time to pay VAT arrangement will inevitably lead to assets being seized and/or the business owner being made bankrupt. In the case of a limited company, the company will undergo compulsory liquidation via a winding up petition. Winding up is the most serious threat to a limited company’s existence and you should seek insolvency advice immediately.

You may be able to set up a payment plan online for it to be paid by instalments. You would first need to have a Government Gateway account before this could be considered.

Trouble Making an HMRC Payment? Contact Us for Free Advice

If you are struggling to pay significant VAT bills on time and you would like free advice when paying HMRC VAT, please call us on 08000 746 757 or email info@companydebt.com for a confidential, no obligation discussion with one of our experienced advisers. We can also advise on what to do about non-payment of PAYE and late payment of Corporation Tax. You can also call our senior turnaround practitioner if you would prefer, Sue Collins is on 07949 969 006. Sue is in regular communication with HMRC and is experienced in helping businesses with VAT problems.

Author: Mike Smith

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