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Can’t pay your VAT bill? Here’s what you can do

Can't pay your VAT bill? Here's what you can do

Can't pay your VAT bill? Here's what you can do

Can’t afford to pay your company’s Valued Added Tax (VAT) bill? It doesn’t need to be the end for your business.

You may be able to negotiate a repayment plan with HMRC or you could restructure your debt into manageable instalments. Whatever you do, though, you should use an insolvency expert like Umbrella.UK Insolvency.

Does my business need to pay VAT?

VAT is a tax rate levied on most goods and services. The standard rate of VAT in the UK is 20% and it is paid by companies with a taxable turnover in excess of £85,000 per year.

Under the Making Tax Digital scheme, VAT-registered companies must submit a VAT tax return to HMRC every three months. Outstanding VAT generally needs to be paid shortly after your three month accounting period.

What happens if I don’t pay my VAT bill?

If you fail to pay your VAT bill on time you will be issued a default on your account. Also known as a surcharge period, this default lasts for 12 months.

You won’t usually receive a penalty fine straight away, but you will receive a penalty if you have more problems paying VAT within this 12 month period. A penalty will typically be a percentage of your outstanding VAT.

If you fail to pay your VAT bill repeatedly, HMRC will start to pursue more severe collection strategies. This could include using a distraint order – which gives HMRC the power to seize company assets – or issuing a winding up petition to close and liquidate your company.

What are my options

If you can’t afford to pay your tax bill, there are three main options open to you.

Agree a Time to Pay arrangement with HMRC

A Time to Pay arrangement is an agreement with the tax authority that you will pay back tax arrears in a series of instalments. HMRC usually prefers Time to Pay arrangements where money is paid back over a shorter time and the agreements will not usually last longer than 12 months.

This kind of agreement is usually preferable for companies, but only if there’s a realistic chance of long-term business survival. HMRC will generally only agree to a Time to Pay arrangement if they think that there’s a good chance of them getting what they’re owed in the agreed time.

Negotiate a Creditors Voluntary Arrangement (CVA) with all creditors

If your limited company is insolvent, meaning it does not have enough money to pay all of its creditors, you can use a CVA to repay all of your creditors over a fixed period. As long as 75% of all of your creditors (which could include HMRC, your suppliers and financiers) your company can continue trading.

A CVA is suitable for companies that have built up debt with multiple creditors, but still have a realistic prospect of long-term success. It gives directors an opportunity to address the issues that have lead to a build-up of debt, while also giving creditors the best chance of getting their money back.

Liquidate your company and walk away

Insolvent companies can use a Creditors Voluntary Liquidation (CVL) to close formally close their company down, liquidate remaining assets and pay off as many creditors as possible. Directors are then free to walk away from the business although they may be subject to future restrictions.

This can be a difficult step to take for individuals that have a strong attachment with their company, but it is often the best course of action when there is no prospect of long-term business survival.

For more information, speak to a member of the Umbrella.UK Insolvency team today. Call: 0800 611 8888.