I Can't Pay My VAT Bill - Will HMRC Give Me Time To Pay?

What happens if we can’t pay the company VAT bill?

If your company has a turnover of more than £90,000 in any financial year then you must register for VAT.  You will need to submit quarterly returns.  Remember it is your responsibility to do this as a director not your accountant.  Yes, they can do it for you but ultimately compliance is your responsibility.  If you haven’t filed a return then HMRC can make a reasonable assessment and chase you for it.

If your company can’t pay VAT, then the company is probably insolvent! You must act to do something about this.

If your business or company has not paid the VAT across to HM Revenue & Customs (HMRC), then there is a strong possibility HMRC will take action against the business. Basically, it’s tax payer’s money and the tax collectors are there to collect it. There are no grey areas, just black and white. After all, HMRC has heard every excuse and will know your company is in financial difficulty, or the tax would have already been paid.

When companies face cashflow crises, management is struggling to cope and failure is imminent, often the major creditor pressure is from one source – HMRC.

HMRC are a preferential creditor, often ranking ahead of the bank.  This may well mean that lenders who have issued loans, that you have personally guaranteed, get less recovery.  This risks exposing you financially.

Banks worry about the pressure that HMRC can bring to bear; bailiffs, distraints, winding up petitions. These can precipitate the failure of the company and bankers worry about their ability to control this. What happens if their client gets a winding up petition from HMRC?

What are the available options for VAT arrears?

There are some options for dealing with tax arrears, but many people don’t know where to start.

HMRC Helpline Phone Number

It is worth calling HMRC’s Business Payment support services telephone number on 0300 200 3835. It’s open from 8am to 8pm Monday to Friday, and from 8am till 4pm at weekends.

Options include:

Ask for time to pay the debt, or a TTP as we call it, if your company can’t pay VAT. HMRC provides a “Business Payment Support Service”.  Using this service, all SMEs which have cashflow issues and good compliance, should be able to get a Time to Pay arrangement with HMRC. If you need help, call us or call the HMRC’s Payment Support Service on 0300 200 3835.

HMRC will want to know:

• Your company’s tax reference number
• Your name and/or the name of your business
• Your/the business’s address including the postcode
• A contact telephone number
• Details of the tax that you believe your company will have difficulty paying

If you contact this service, you will need to explain why:

• Your company is unable to pay in full and on time
• What you have done to try and raise the money to pay the debt
• How much your company can pay immediately
• How long you think your company will need to pay the rest
• Depending on why your company can’t pay, what your payment history has been and how long it needs to pay the rest.. HMRC will ask you a number of questions so that they can judge the company’s ability to pay this debt via future payments.

Time to Pay Arrangement

Ask us, KSA Group, to arrange a time to pay deal if your business can’t pay the VAT. As licensed insolvency practitioners, we are very highly regarded by HMRC and deal with them in offices right across the country. We will need to know all of the above details and also do some financial forecasting work in order to establish what the company can afford to pay back and over what period. Call now for this expert service on 08009700539

Company Voluntary Arrangement

Consider a company voluntary arrangement. This will take the pressure off straight away. We are the UK’s leading CVA experts with huge experience of arranging CVA deals with creditors, including HMRC. This allows non tax debts to be partially written off. It also allows your company to cut costs, make redundancies and plan a turnaround.

The administration or pre pack administration.

These very powerful techniques can help protect the business assets and sell them to new company or third party. This will protect the company from aggressive legal action by HMRC.

What are the penalties if you get behind on VAT payments?

If you file your VAT return late or do not pay then this is known as a default.  Various penalties and surcharges are applied. Surcharges will increase by percentage according to the number of defaults in a 12 month period.  The percentages also increase the higher the turnover as they are of the view that larger companies should have better systems in place for paying VAT.

From 1 January 2023, new penalties for late VAT filing and payment now apply. This applies to everyone who is to submit a VAT return for accounting purposes, on or from that date.

Interest which is applied to late VAT payments and late HMRC payments has also changed.

It is important to understand the changes; some being an improvement on the previous regime, but some being ways to catch out taxpayers and related agents. For that reason, we explain it for you here (You may also see this page on the Gov.uk website, for details).

Late Filing of VAT

This system is now points based. Taxpayers will receive a point for each VAT return that is filed late. When the taxpayers’ total number of points reaches a threshold, a fixed £200 penalty will be applied. This penalty is to be applied for each and every additional late VAT return after reaching the threshold.

The frequency of which the taxpayer files their VAT returns will determine the threshold:

• Annual returns – 2 points
• Monthly returns – 5 points
• Quarterly returns – 4 points

How long do my points remain?

It should be noted that there are ways to reset your points.

1. If the taxpayer reaches their penalty threshold then points expire after a period of compliance
2. If the taxpayer is below their penalty threshold then points expire after 24 hours

What is a period of compliance?

Ultimately, this refers to a period in which all returns have been filed on time and all outstanding VAT returns for the previous 24 months must have been submitted. Following this period, the taxpayers’ points total will reset to zero.

You can see the table below for more information

Is there a link between the amount of late filing penalty and the VAT due on the return?

Unlike in the previous regime, this time round there is no relation. This means repayment traders and taxpayers filing null returns will be in the midst of late filing penalties for the first time.

Late VAT Payment

The changes have been made to encourage struggling taxpayers to reach out and engage with HMRC as soon as possible.

Penalties applied are based on how late the payment is. So the sooner you pay, the lesser the penalty rate.

• Between days 1 and 15, if you agree on a payment plan or pay the owed VAT in full, no penalty will be charged
• Between 16 and 30 days overdue, a first penalty will be calculated at 2% of the VAT unpaid on day 15.
• If at 31 days or more overdue, along with the first penalty, you will be charged an additional 2% on the VAT owed on day 30
• From day 31, a second penalty applies, charging daily at an annual rate of 4% of the outstanding amount, for the duration it remains

With both penalties in mind, if a Time to Pay Arrangement (TTP) is agreed upon with HMRC then this is treated the same way as a payment. The penalty clock will stop on the date of the TTP application. If the TTP terms are broken, full penalties will be charged and it will be as if the arrangement never existed.

KSA Group are experts at negotiating with HMRC.  HMRC are “sophisticated creditors” in that they know all the procedures and rules.  You therefore need professional advice to make sure of the best outcome to save your business and stop the bank closing it down.

Do not be tempted to borrow money from online lenders to pay a HMRC bill unless you are sure you can pay it back.  These loans almost always have a personal guarantee requirement so you can become liable for the company’s debts!

Personal Liability

If the company is insolvent, you could be personally liable for the debts if you continue to trade whilst doing nothing about the problems the company faces. Wrongful trading can be a real problem if ongoing tax arrears are building up and the company enters insolvent liquidation. Failure to pay VAT could result in a personal liability notice from HMRC.

So, act carefully, keep notes of any decisions and always write down names of people you speak to at HMRC. Take advice from experts, and above all, act promptly as delay may just lead to more problems for you as directors. If you want to know more about wrongful trading, click here.

Tips for dealing with HMRC VAT arrears

Don’t wait until legal actions have been taken against the company to ask for a Time to Pay deal with HMRC. It is better to ask for help BEFORE arrears build up.

Try to plan the cash flow of the business well in advance. You have a legal obligation to do this! If the directors do not think the company has sufficient cash to trade, they should consider the obligations and plan a way forward.

Don’t be too ambitious in planning repayment. Your company will have bad months as well as good, so be careful with the cash flow forecasts. Do you want a free cash flow model? Email keiths@ksagroup.co.uk for advice.

Ask for 12 months to pay back VAT, knowing that you may get 6-12 months at most.
If your cash flow forecast says the company can be viable, but the business cannot afford a relatively fast repayment programme, then you must consider a company voluntary arrangement (CVA).

Has HMRC issued a winding up petition or threatened to petition against your company because you can’t pay VAT? If so, get help now by calling our free helpline or see this page for more details on dealing with a winding up petition.

It is estimated that over 200,000 companies are on some form of payment plan and many are failing to keep up with them. Non-payment of this tax is a failure to comply with the tax legislation and also signifies publicly (loud and clear to HMRC) that the company is insolvent. So, you need to act properly and responsibly by dealing with this serious threat to your company. If your company needs urgent help – call us now for free on 08009700539 or email our advisors on help@ksagroup.co.uk. We can help with a time to pay deal or other turnaround options.

Don’t wait too long to get professional turnaround help. Call the experts on 0800 9700539