Can’t pay Your VAT Tax Bill to HMRC?
If you and your company are having VAT problems and can’t make an HMRC payment then it is likely to be a symptom of something going wrong within the business.
For directors of a limited company, 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.
This article will explain your options and the likely reactions from HM and Revenue.
What Happens if I Can’t pay my VAT bill?
If you’re in arrears, and unable to pay HMRC, you will be eager to know what is likely to happen.
HMRC has a refined and well executed system of escalation for late paying debts, which will begin with a letter.
It’s worth pointing out that, of all the things you can owe money to HMRC for, VAT is the one they pursue most aggressively. That’s because, unlike corporation tax, for example, VAT is money that was always the governments, you’ve just acted as an unofficial tax collector on their behalf.
Read on to find out the likely course events, plus the specifics of surcharges and penalties.
Consequences of VAT Non-payment or 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.
|Number of Late Payments||Turnover below £150,000||Turnover above £150,000|
|First||No Penalty||No Penalty|
|Second||No Penalty||2 percent of unpaid VAT (unless below £400)|
|Third||2 percent of unpaid VAT (unless below £400)||5 percent of unpaid VAT (unless below £400)|
|Fourth||5 percent of unpaid VAT (unless below £400)||10 percent of unpaid VAT|
|Fifth||10 percent of unpaid VAT||15 percent of unpaid VAT|
|Sixth and Subsequent||15 percent of unpaid VAT||15 percent of unpaid VAT|
For those payments that are overdue by a lot, HMRC may send a distraint order 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.
Interest and Penalties
There may be interest added to any late payments of tax and contacting HM Revenue and Customs quickly may prevent further penalties being applied.
Read more about Penalties and Interest for Late VAT
If you suspect that your business is insolvent seek advice from a licensed insolvency practitioner such as ourselves to see whether the business can be salvaged and can continue trading.
Is it a Criminal Offence to not pay VAT?
Being late or in arrears with VAT is not a criminal offense. You simply need to maintain regular contact with HMRC so that they’re aware of your circumstances and don’t feel the need to escalate things.
In some cases, when arrears reaches a certain point, HMRC will send you a ‘ Notice of Requirement to Pay a Security for VAT .’ This means you now owe them so much that they’re insisting on some kind of security to cover the debt. A security bond comes with a 30 day payment term and if you do not pay this, it IS a criminal offence.
Failure to pay an HMRC security bond will likely result in HM & Revenue pursuing you in court.
Receipt of one of these notices is something you should definitely discuss with your accountant, or an experienced HMRC meditator such as ourselves.
HMRC Late VAT Payment Helpline
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.
0300 200 3835
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.
Time to Pay Arrangements
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.
Can I Pay VAT By Credit Card?
Many directors ask if they can pay their vat by credit card. The answer to this is yes but only if you have a corporate credit card. Personal credit cards will not be accepted.
NB: You cannot use an American Express card, Mastercard or Visa are the only options accepted.
You can pay HMRC online at this link.
Can VAT be paid in installments?
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.
What are the Most Common VAT Payment Problems?
Failure to Register
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.
Unexpectedly Large Bill
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.
Forgetting to Deregister for VAT
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.
Any 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.