What are the Consequences of not Making VAT Payments to HMRC on Time?

It is mandatory that businesses file their VAT return online and make electronic payments on time. VAT returns will be filed quarterly, unless a business is in trouble with HMRC or receives regular repayments. Payments must be made seven days after the month following the end of your VAT period. So, if your VAT return period ends on 31 December, cleared funds must be in HMRC’s account by 7 February. Fail to do so and the consequences can be serious.  

HMRC will Assume the Company’s Insolvent

If you fail to submit a return or do not make a VAT payment by the deadline, this is not a situation HMRC will allow to continue. From HMRC’s point of view, it will assume a company which is unable to pay its VAT is likely to be struggling financially, and could be insolvent while continuing to trade. HMRC is the most common creditor in insolvent liquidations, so HMRC will act quickly to prevent any further tax liabilities from being incurred.

Substantial Penalties can Accrue

HMRC has a wide range of powers it can use against companies that fail to pay their VAT on time. There is no financial penalty for a first offence. Instead, a business that submits a late VAT return or does not make a payment on time will be issued with a surcharge liability notice. From this point on, any further late returns or payments (defaults) will be dealt with by way of a penalty charge. The effect of a penalty will be to increase your business costs at a time when it is struggling financially.

No Allowances are Made

The default surcharge system can result in businesses suffering substantial penalties for missing a VAT deadline. There are also no allowances for the cause of the delay. For this reason, it is essential you contact HMRC as soon as you recognise you have a cash-flow problem that could prevent a VAT payment being made. If you do, you may be able to negotiate an agreement to get more time to pay, or to pay in instalments by direct debit.

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