Company Cannot Pay VAT – What Are My Options?

If your company cannot pay its VAT bill, don’t ignore the problem. VAT arrears can build quickly and HMRC may take enforcement action to recover unpaid tax.

A missed VAT payment does not necessarily mean your business has to close. The key question is whether the company is experiencing a temporary cash flow shortage or whether the unpaid VAT forms part of a wider insolvency problem.

Umbrella.UK Insolvency helps company directors understand their options when VAT and other HMRC liabilities have become unaffordable.

Company struggling to pay VAT?

Speak confidentially to a Licensed Insolvency Practitioner about your company’s position.

Request a free consultation

Call 01625 546 240 for immediate help

What happens if my company can’t pay its VAT bill?

If your company cannot pay its VAT liability in full and on time, the debt remains due to HMRC.

Depending on the circumstances, interest and penalties may apply and HMRC can pursue the company for the outstanding amount.

The most important thing is not to ignore the arrears.

If the company has the underlying ability to pay but is experiencing a short-term cash flow problem, there may be ways to address the debt. If it cannot realistically repay the VAT arrears, wider insolvency options may need to be considered.

Why do companies fall behind with VAT?

VAT arrears can arise for many reasons, including:

cash flow shortages
customers paying invoices late
falling sales or margins
unexpected business costs
rapid growth putting pressure on working capital
existing debt repayments
using money set aside for VAT to meet other urgent business costs

Whatever caused the problem, repeated difficulty paying VAT can be a warning that the company’s cash flow position needs closer examination.

Can I arrange a payment plan for VAT arrears?

HMRC may agree a Time to Pay arrangement for VAT debt in appropriate circumstances.

This normally involves repaying the arrears over an agreed period.

Before agreeing to any repayment plan, however, it is important to make sure the company can genuinely afford it alongside future VAT, PAYE, Corporation Tax and its other ongoing liabilities.

Agreeing repayments the business cannot sustain may simply postpone the underlying problem.

Are VAT arrears a sign that my company is insolvent?

They can be.

A single missed VAT payment caused by a temporary cash flow issue does not automatically make a company insolvent.

However, if the business repeatedly cannot meet VAT liabilities when they fall due, or is also struggling to pay employees, suppliers, lenders or other taxes, this can indicate a wider insolvency problem.

At this point, directors should consider seeking professional advice rather than continuing to accumulate debt.

What can HMRC do about unpaid VAT?

HMRC has a range of powers to recover unpaid tax.

The action taken will depend on the circumstances and stage of the debt, but persistent unpaid HMRC liabilities can ultimately lead to serious enforcement action, including a winding-up petition against the company.

Can a company with VAT arrears continue trading?

Potentially, but this depends on its overall financial position.

If the business remains viable and the VAT problem can realistically be resolved, continuing to trade may be possible.

Potential options could include:

HMRC Time to Pay

Suitable for some companies experiencing temporary financial difficulty where repayments are affordable.

Company Voluntary Arrangement

A CVA may be considered where the company is insolvent, but the underlying business remains viable, and a sustainable proposal can be made to creditors.

Administration

Administration may be appropriate in certain cases where a viable business or its assets need protection and a statutory purpose can be achieved.

Creditors’ Voluntary Liquidation

Where the business is no longer viable and cannot pay its debts, a CVL may provide an orderly way to close the company.

Can VAT debt be included in a liquidation?

Yes. A company can enter liquidation while owing VAT and other taxes to HMRC.

HMRC would be a creditor in the liquidation and the appointed Liquidator would deal with the company’s affairs in accordance with insolvency law.

Get help with company VAT arrears

If your company cannot pay its VAT, dealing with the problem sooner gives you more opportunity to understand what is realistically achievable.

Umbrella.UK Insolvency can review your company’s financial position and explain whether the problem may be manageable or whether a formal insolvency solution should be considered.

VAT bill due and the company can’t pay?

Speak confidentially to one of our Licensed Insolvency Practitioners.

Request a free consultation

Call 01625 546 240 for immediate help

What our clients tell us

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Tom Fox was incredibly helpful as I prepared to liquidate a couple of companies - clear advice, a respectful approach to both myself as director and the creditors, and a reasonable fee structure vs many of the national IP's I spoke to whilst researching who to work with.

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I engaged Umbrella accountants to oversee a Members Voluntary Liquidation for the small consultancy business I've been running. The team talked me through the MVL process, steps and requirements. The paperwork involved was well explained and straightforward, with the initial disbursement of funds handled very quickly and professionally under tight deadlines.

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