Paying VAT late will result in a penalty, known as a “default”. HMRC work hard to ensure every company pays its VAT and tax obligations on time because the money belongs to the taxpayer.
Continually failing to pay VAT on time can lead to legal action, for example, a winding up petition issued by HMRC. The petition is advertised publicly and in the worst-case scenario could force the company into liquidation.
What are the consequences if I miss a VAT deadline?
If your company turns over more than £150k and misses its first VAT payment deadline, you will be sent a ‘Surcharge Liability Notice’. If your company fails to pay on time for the next 12 months, HMRC will impose penalties depending on the VAT amount.
If your company has a turnover of less than £150k, HMRC will send you a reminder letter about paying VAT on time. If you miss another payment deadline within the next 12 months, you will then be sent the Surcharge Liability Notice and be put into the penalty process.
If the company defaults, HMRC will notify you of any surcharges. A surcharge is a percentage of the tax that has been paid late.
Have you been issued a penalty for late payment?
This is of course, something you wish to avoid. However, if you do become subject to a penalty, there are different categories for your fine to fall in to. Ultimately, it depends on the amount of times you have fallen behind on your payments and the company turnover. See the table below:
| Number of Late Payments | Penalty for companies with turnover up to £150,000 | Penalty of companies with turnover in excess of £150,000 |
| One | None | None |
| Two | None | 2% of unpaid VAT (or £400 whichever is highest) |
| Three | 2% of unpaid VAT (or £400 whichever is highest) | 5% of unpaid VAT (or £400 whichever is highest) |
| Four | 5% of unpaid VAT (or £400 whichever is highest) | 10% of unpaid VAT |
| Five | 10% of unpaid VAT | 15% of unpaid VAT |
| Six+ | 15% of unpaid VAT | 15% of unpaid VAT |
A daily interest rate of 2.75% will be charged on to the balance of any late payment, so be warned. Until you can pay off the debt, this will continue being charged.
How can I prevent late VAT payments?
There are several ways to prevent late payments from happening, or becoming a severe problem. If late payments are a recurring issue, cash flow and general financial management must be addressed. Conducting a business review or audit will help pinpoint cash flow problems.
If your business is struggling, consider asking for a time to pay deal (TTP) with HMRC. This plan allows the company to repay the debt over a few months, or up to a year, in affordable instalments. This could be referred to as a VAT debt management plan.
Call us now on 0800 9700 539 for help with VAT payment problems.
What are the available options for late VAT payments?
- Enter a VAT debt management plan or time to pay arrangement with HMRC
- Get a VAT loan but be careful this is not just putting off important decisions
- Propose a Company Voluntary Arrangement
As experts in turnaround and insolvency with over 20 years of giving advice we are able to spot the issues, set out a plan and guide you, if you need it. We are also licensed by the government to act as insolvency practitioners so we MUST give correct, proper and relevant advice.
- Can you re-finance the company or business?
- Is there a way to raise money from a bank loan or factoring company for example?
- Is it possible to replace that factor?
Can you put personal funds into the company? Warning : make sure that the business is VIABLE in future before doing that.
Ask for time to pay the debt or a TTP as we call it. HMRC provides a “Business Payment Support Service” (BBPS). Using this service, all businesses with cash flow problems can request a Time to Pay arrangement with HMRC. You can call the HMRC’s Payment Support Service on Tel 0845 302 1435.
HMRC will want to know why you are not on time with paying VAT. The collector will ask questions like:
- What are your plans?
- Why has the debt come about?
- Has a bad debt occurred?
- Have you spoken to the bank and asked for help there?
- Can you put money in?
Depending on why you can’t pay, how long you need to pay the arrears of VAT owed and your payment history – HMRC may allow you a few months to pay the debt off. Warning; usually all future tax debts (including corporation tax, PAYE and NIC) must be paid on time or the TTP will fail.
If a TTP is not affordable then maybe a Company Voluntary Arrangement (CVA) is an option
We can arrange a CVA or company voluntary arrangement. This will take the pressure off straight away! A CVA is simply the best way of restructuring a company’s debts available and the good news is you stay in control of the company. See our VIDEO on CVAs here. The CVA option allows tax debts to be partially written off. It also allows you to cut costs, make redundancies and plan the turnaround of the company. Will that solve your problems?
If a threat of a winding up petition is made by HMRC then an Administration or pre pack administration solution can be a great solution. Pre Pack administration is a powerful way to protect the business assets and sell them to a new company formed by you or a trade buyer for example. This will protect the company from aggressive legal action of HMRC like winding up.
If the company is simply never going to be viable, then you should carefully consider creditors voluntary liquidation, this effectively closes the company down and may help protect the directors. Read more here on liquidation.
If your business is constantly building up arrears of VAT this is a failure to comply with the law and also makes HMRC tax collectors think that the company is insolvent. So, you need to act properly and responsibly and deal with this serious threat to your company.
Will I be personally liable for the VAT?
Remember that if the company is insolvent, and if it goes into liquidation in future you could be personally liable for the debts, if you continue to trade, whilst doing nothing about the problems that it faces. If you KNOW the company is insolvent and you make the creditors’ position worse, then in a future liquidation you can face personal liability for the debts you took on.
Our advice is always to act quickly and carefully, get expert advice from us, keep notes of any discussions and decisions and always write down the names of people you speak to at HMRC. Finally, don’t wait too long to get professional turnaround help. Call the HMRC debt experts on 0207 887 2667 or 0800 9700539 or email our advisors on help@ksagroup.co.uk
