If your company can’t pay VAT, it’s important to act quickly and make decisions based on facts rather than hope. That starts with filing the return on time, confirming the figure owed, and getting a simple view of cash coming in and out over the next few weeks.
If the business is viable and can afford instalments while keeping up with future VAT, you may be able to agree a Time to Pay arrangement with HMRC. If instalments aren’t affordable, or arrears keep repeating, it may indicate the company needs restructuring support or a more formal solution.
Anderson Brookes helps directors understand the safest next step. This page explains the practical actions to take today, how to approach HMRC, and what options may be available if a payment plan isn’t suitable.
At a Glance: What to Do Today
- File your VAT return on time, even if you cannot pay.
- Confirm the exact amount and due date. Check for errors before you speak to HMRC.
- Work out what you can realistically afford each month and what has caused the shortfall.
- Contact HMRC early to discuss paying in instalments.
- If the business cannot afford a plan, get advice quickly about your options and director duties.
For a free, confidential consultation, call us on 0800 1804 935 or email advice@andersonbrookes.co.uk.
Table of Contents
First Steps If You Can’t Pay VAT
The first and most crucial piece of advice when facing VAT debt is: don’t ignore the issue. If you cannot pay your VAT bill, failing to act could lead to escalating penalties and further financial difficulties. This only worsens an already stressful situation.
When it comes to collecting unpaid VAT, HMRC can escalate recovery action quickly. Penalties and interest charges can quickly add up, increasing the debt you owe. If you still can’t pay VAT, then you could end up facing HMRC enforcement visits. There’s also the possibility that HMRC will serve your company with a winding-up petition.
Don’t delay and don’t guess
VAT debt tends to escalate when HMRC sees late payment patterns or missed filings. Take 15 minutes to confirm:
- The VAT return has been submitted (or is ready to submit)
- The amount due is correct
- The due date and payment reference are correct
Make a realistic affordability plan
A payment plan only helps if it is realistic. A plan that fails can put you in a worse position, because it often triggers faster recovery action.
Write down what the business can pay each month while also meeting wages and essential overheads, current VAT going forward, and what is needed to keep trading.
Worried that you can’t pay VAT?
If you are at the stage where even instalments are not affordable, treat that as a warning sign. It usually means the cash flow issue is no longer short term, and you may need wider debt advice.
If you’re struggling to pay your VAT bill, contact HMRC as soon as possible. It’s always better to communicate early rather than let the debt snowball. HMRC is often willing to work with businesses that proactively reach out, and in many cases, a Time to Pay (TTP) arrangement can be made.
Anderson Brookes has significant experience negotiating with HMRC to help businesses get back on track. Our team can help you reach a reasonable agreement and ensure your company has breathing space to recover financially.
Time to Pay for VAT
A Time to Pay arrangement is an instalment plan agreed with HMRC to clear VAT arrears over time. It allows you to pay your VAT debt in instalments over a set period, typically up to 12 months. This can help you manage your finances while ensuring that you’re still meeting your tax obligations.
A Time to Pay proposal is stronger when you can show:
- The business is viable, but has a temporary cash flow gap
- You are up to date with current filings
- You can afford the instalments without falling behind again
The clearer your financial position and your commitment to resolving the debt, the better the chance of securing a TTP arrangement. For a practical checklist of what to prepare, use our HMRC Time to Pay evidence pack.
What you’ll need before you contact HMRC
Have these ready before you call or use online services:
- VAT registration number and the amount due
- A simple summary of income and essential outgoings
- A realistic monthly offer and the date you can start paying
- A short explanation of what caused the arrears (late-paying customers, one-off costs, loss of contract, seasonal dip)
- Cash flow forecast (even a basic 12-week view helps)
Anderson Brookes can help you negotiate a TTP agreement that suits your circumstances. Our team will guide you through the process, preparing the necessary financial documentation and helping you present a solid case to HMRC.
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What to Do If HMRC Says No
If HMRC will not agree instalments, you still have options. The right route depends on whether the business can recover.
Option A: Stabilise cash flow and revisit the proposal
If the business is viable, you may be able to improve affordability by:
- Reducing non-essential costs
- Tightening credit control
- Negotiating supplier terms
- Reviewing pricing and margin
If VAT arrears sit alongside wider HMRC debt, read our guide to HMRC debt management for a broader strategy.
Option B: Consider a formal rescue or restructure
If the company can survive but needs protected time to repay, formal tools may be appropriate. This might, for example, include a CVA if the circumstances are right.
For the main routes for directors, read our article on what to do if you can’t pay tax.
Option C: If the company is insolvent, consider an orderly closure
If the business cannot pay its debts when they fall due, it may be safer to stop trading and take formal advice. If VAT debt is a core issue, see our step-by-step guide to closing a limited company with VAT debt and closing a company with HMRC debts.
VAT Payment Plans: Exploring Alternatives
If a Time to Pay arrangement is not a suitable solution for your business, there are alternative ways to ease your VAT debt burden. These include:
- Cash Accounting Scheme: Under this scheme, you pay VAT only when your customers pay you, rather than when you issue invoices. This can help businesses with cash flow problems or slow-paying clients.
- Annual Accounting Scheme: This allows businesses to submit just one VAT return annually, rather than the usual quarterly returns. This can help improve cash flow by spreading VAT payments over the year.
- Online VAT Payment Plan: For smaller debts of up to £100,000, HMRC offers an online payment plan, which can spread payments over a year. This option is available to companies with no other outstanding company tax debts.
These schemes are designed to help companies manage their VAT obligations more effectively, providing flexibility in challenging times.
When to Consider Formal Insolvency Solutions
If you find that your company can’t pay VAT, understanding the root cause is crucial. In some instances, the issue is temporary. However, it can also signal deeper financial problems with your business.
If your business is no longer viable, you may need to consider formal insolvency options. These can include:
- Creditors’ Voluntary Liquidation (CVL): If your company is insolvent and cannot recover, you may need to consider a CVL, which is a formal insolvency process. This allows for the orderly winding down of the company and ensures that creditors, including HMRC, are paid in a fair and legal manner.
- Administration: If you believe your business can be saved, entering administration may be a viable solution. Administration provides breathing space from creditors while a plan for restructuring the business is developed.
What Happens If VAT Arrears Are Ignored
If you fail to act on your VAT debt, the consequences can be severe. Ignoring VAT arrears can lead to:
- Increased interest and penalties
- Stronger collection activity and escalating HMRC contact
- Enforcement action that disrupts trading
- Formal legal steps if arrears remain unresolved
HMRC has the power to seize assets, initiate distraint (the removal of goods to sell and recover the debt), or even serve a winding-up petition, which could result in compulsory liquidation.
If you are worried about enforcement or bailiffs, our bailiffs and company debt guide explains how it works and the steps that can help limit disruption.
Director Duties and Personal Risks
As the director of a limited company, you have legal responsibilities when it comes to VAT and other tax obligations. Even if your business is struggling, you must continue to file VAT returns on time. Failure to do so can lead to personal liability for unpaid VAT, especially if HMRC deems that you’ve been negligent in your duties.
To make sure you’re staying compliant, be sure to:
- Keep proper records and stay on top of filings
- Treat creditors fairly
- Avoid making the position worse by continuing to trade without a plan
If you are unsure where you stand, get advice early. It is often easier to control the outcome when you act before HMRC pressure peaks. Ignoring your responsibilities as a director can lead to personal repercussions, including disqualification.
You may also find our Direct Recovery of Debts (DRD) guide helpful if you are seeing stronger recovery language from HMRC.
Prevent Future VAT Issues
To avoid future issues with VAT, it’s essential to implement strong financial management practices. Set aside funds for VAT as part of your business’s monthly budget and review your financial position regularly. Proactive planning and effective financial forecasting can prevent VAT issues from escalating and ensure that your business remains on top of its tax obligations.
With the right support and careful financial planning, your business can overcome current VAT difficulties and build a stronger foundation for the future.
FAQs
Can I file my VAT return if I can’t pay?
Yes. Filing on time is still important, even if payment is late. Keeping filings up to date can also help when you ask HMRC for instalments.
What is a Time to Pay arrangement for VAT?
It is an instalment plan agreed with HMRC to clear arrears over time. It works best when your offer is affordable and supported by a simple forecast.
Is there an online VAT payment plan?
HMRC sometimes offers online ways to set up instalments depending on the tax type, the amount and your situation. If you cannot access an online plan, you can still contact HMRC to discuss options.
What if HMRC refuses a Time to Pay plan?
If instalments are refused, you need to step back and choose the next safest route. That could mean improving affordability, taking restructuring advice, or considering an orderly closure if the company is insolvent.
I cant pay VAT and other taxes. What should I do?
Treat it as a wider cash flow problem, not a single VAT issue. Confirm the full HMRC position, prioritise current filings, and get advice on a joined-up plan.
Can directors be personally liable for VAT debt?
Personal liability is not automatic, but risks increase if duties are ignored or the position worsens through continued trading without a plan. Take advice early if insolvency is possible.
How Anderson Brookes Can Help
If you are struggling to pay your VAT bill, it’s crucial to seek professional advice as soon as possible. Anderson Brookes specialises in helping businesses manage VAT debt. Whether it’s negotiating a Time to Pay arrangement with HMRC or guiding you through more formal insolvency procedures, we’re here to support you every step of the way.
We will help you:
- Understand whether Time to Pay is realistic
- Prepare the right financial information
- Choose a route that protects the business where possible
- Reduce personal risk where the company is insolvent
Contact us today for a free, confidential consultation at 0800 1804 935 or email advice@andersonbrookes.co.uk. Our team of experts is ready to help you resolve your VAT debt and get your business back on track.
