Dealing with VAT Debt: Immediate Steps You Can Take
Don’t Ignore the Problem
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 – and lots of stress! HMRC is very proactive when it comes to collecting unpaid VAT, and if left unaddressed, the situation can quickly worsen.
Initially, you may face penalties and interest charges, which start accumulating as soon as your payment is late. This can add up quickly and increase the debt you owe. If the debt is not paid, HMRC can escalate matters by sending bailiffs to seize assets, or even serving a winding-up petition on your company for debts as low as £750.
Unlike many other types of debt, VAT arrears do not become statute-barred and can be pursued by HMRC indefinitely. This makes early intervention critical in resolving your VAT debt situation and preventing further damage to your business.
Contact HMRC or Seek Expert Help
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.
Free Consultation – advice@andersonbrookes.co.uk or call on 0800 1804 933 our freephone number (including from mobiles).
What Is a Time to Pay Arrangement?
A Time to Pay (TTP) arrangement is an agreement that 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. However, to qualify for a TTP arrangement, HMRC needs to be confident that your business can make the agreed repayments and that the situation is manageable.
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.
You’ll need to provide:
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Your VAT reference number
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Details of your company’s income and expenditure
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Cash flow forecasts
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Any cost-cutting measures you’ve implemented or are planning to implement
The clearer your financial position and your commitment to resolving the debt, the better the chance of securing a TTP arrangement.
What Happens If Time to Pay Isn’t an Option?
If HMRC does not agree to a Time to Pay arrangement, or if your company simply can’t afford to repay the VAT debt, you may need to explore other options.
Formal Insolvency Solutions
When VAT arrears become part of a larger debt problem that your business cannot recover from, formal insolvency procedures may be necessary. Options 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. You may also be interested in CVL Costs.
Voluntary Liquidation Process – Example
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.
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:
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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.
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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.
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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.
Consequences of Failing to Address VAT Debt 
If you fail to act on your VAT debt, the consequences can be severe. 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.
Repeated failure to address VAT arrears can escalate quickly, leading to increasing penalties and interest charges. So, it’s really important to act swiftly before the situation spirals out of control.
Consider the Root Cause of Your VAT Issues
It’s essential to understand the underlying reasons why you cannot pay your VAT bill. If your business is struggling with cash flow, it could be a sign of deeper financial issues. Perhaps clients are not paying on time, or there are larger cash flow problems within your business.
You might need to implement stronger credit control measures or even consider invoice financing as a way to secure the cash you need to meet your obligations.
If the problem lies in the overall financial viability of your company, it may be time to speak with a Licensed Insolvency Practitioner, like Anderson Brookes, to explore formal debt restructuring options, such as a Company Voluntary Arrangement (CVA) or liquidation.
Director Responsibilities in Managing VAT Debt
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.
If your company cannot continue trading, you may also be required to cease trading and wind up the business through formal insolvency procedures. Ignoring your responsibilities as a director can lead to personal repercussions, including disqualification.
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.
Contact us today for a free, confidential consultation at 0800 1804 933 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.
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.
Contact Anderson Brookes for immediate help with VAT debt, insolvency solutions, or any other financial difficulties your company may be facing.
Free Consultation – advice@andersonbrookes.co.uk or call on 0800 1804 933 our freephone number (including from mobiles).
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