I can’t pay the VAT – what are my options?

What happens if I am unable to pay the VAT my company owes?Not being able to pay the VAT bill can be a challenging and stressful situation for any individual or business. VAT (Value Added Tax) is a consumption tax that must be paid to the government on certain goods and services.

When financial difficulties arise, fulfilling this obligation may become an overwhelming burden. It could be due to a variety of reasons such as unexpected expenses, a downturn in business, or insufficient cash flow.

Failing to pay the VAT bill can have serious consequences, including penalties, interest charges, and even legal actions by the tax authorities.

In such circumstances, it is crucial to communicate openly with the tax authorities, seeking extensions or payment arrangements to find a feasible solution and prevent the situation from escalating further. Seeking professional financial advice may also help in developing a plan to address the outstanding VAT liability and regain financial stability.

What happens if I am unable to pay the VAT my company owes?

If you are unable to pay the VAT your company owes, you may be contacted by HMRC. They will ask you to pay what you owe, plus interest and any penalties that may apply. If you don’t pay, HMRC can take enforcement action, which could include making you bankrupt or sending bailiffs to your home or business.

In addition, if you are a director of a company that owes VAT, you may be personally liable for the debt. This means that HMRC can take action against you personally, even if the company is no longer trading. As a result, it is important to make sure that you keep on top of your VAT payments and contact HMRC as soon as possible if you are having difficulties paying.

Limited company cannot pay VAT

One key difference between a limited company and a sole trader is that a limited company cannot pay VAT, the liability stays with that company and not the directors. Instead, it must register for VAT and charge VAT on its supplies. This can be a disadvantage if the company is registered for VAT at a rate that is higher than the standard rate, as it will have to pay more VAT on its supplies.

However, if the company is registered for VAT at a lower rate, it can claim back the difference. It is also worth noting that a limited company can only claim back VAT on expenses that are incurred wholly and exclusively for business purposes. This means that any private expenses, such as travel or entertainment, cannot be claimed back. As a result, it is important to keep track of all business expenses in order to maximise the chances of claiming back VAT.

How often do I have to pay my VAT bill?

Depending on the size of your business, you will have to pay VAT either quarterly or monthly. You can also choose to make advance payments if you expect your turnover to be high in a certain period. You will need to file a VAT return form with HMRC every quarter or month, and this is where you will declare how much VAT your business has collected and paid. If you have paid more VAT than you have collected, you will be due a refund from HMRC. Conversely, if you have collected more VAT than you have paid, you will need to make a payment to HMRC.

The deadline for filing your VAT return and making any payments is typically one month after the end of the relevant period. For example, if you are required to file monthly, your deadline for the January return would be 28 February. However, it is important to note that deadlines may vary depending on the method used to file the return.

For electronic filings, the deadline is typically earlier than for paper filings. This is because HMRC needs time to process the return before they can issue a payment or request a payment from the taxpayer. As a result, it is always best to file your VAT return well in advance of the deadline to avoid any penalties.

My accountant has calculated my VAT return incorrectly – do I still have to pay?

If you think your accountant has made a mistake on your VAT return, you should contact them as soon as possible to discuss the issue. In most cases, they will be able to correct the error and resubmit the return. However, if the error is not corrected before the deadline, you may still be liable for the outstanding amount.

If you believe that you should not have to pay the full amount, you can request a review from HMRC. They will consider your case and decide whether or not you are liable for the outstanding VAT. If you do not agree with their decision, you can appeal to the VAT Duties Tribunal. However, it is important to note that this process can be lengthy and costly, so it is always best to try and resolve the issue with your accountant first.

What happens if I do not submit my return or pay my VAT bill on time?

If you do not submit your return or pay your VAT bill on time, you may be subject to a late filing penalty. This penalty is usually 10% of the unpaid tax, plus interest. In addition, you may also be liable for any unpaid VAT, plus interest.

If you are found to have deliberately withheld or underpaid VAT, you may be subject to a 100% penalty and/or prosecution. Therefore, it is important to ensure that you submit your return and pay your VAT bill on time to avoid these penalties.

Number of Late Payments Turnover below £150,000 Turnover above £150,000
First No Penalty No Penalty
Second No Penalty 2 percent of unpaid VAT (unless below £400)
Third 2 percent of unpaid VAT (unless below £400) 5 percent of unpaid VAT (unless below £400)
Fourth 5 percent of unpaid VAT (unless below £400) 10 percent of unpaid VAT
Fifth 10 percent of unpaid VAT 15 percent of unpaid VAT
Sixth and Subsequent 15 percent of unpaid VAT 15 percent of unpaid VAT

What is a VAT notice of assessment?

A Value-Added Tax (VAT) notice of assessment is a document that businesses in the European Union (EU) are required to file with their local tax authority. The notice includes information on the business’s VAT liability for the period covered by the filing, as well as any adjustments that have been made to the amount due. businesses must file a VAT notice of assessment even if they do not owe any VAT for the period in question.

The filing deadline for a VAT notice of assessment is typically three months after the end of the period being reported on. businesses that fail to file a timely VAT notice of assessment may be subject to penalties and interest charges.

What options are available if you can’t pay your VAT

If you find yourself in the position of not being able to pay your VAT, there are a few options available to you. First, you can contact HMRC and arrange a payment plan. This will give you some time to get your finances in order and make regular payments towards your debt. Second, you can sell some of your assets in order to raise the necessary funds.

This may be a difficult option, but it can provide you with the money you need to pay off your VAT bill. Finally, you can apply for a VAT refund. If you have paid too much VAT , you may be able to get some of that money back. These are just a few of the options available if you find yourself unable to pay your VAT bill.

Talk to an accountant or financial advisor to see what option is best for your particular situation.

Time to Pay (TTP) arrangement

HMRC’s Time to Pay service can give you extra time to pay your VAT bill if you’re experiencing financial difficulties. Once you’ve contacted HMRC, an officer will discuss your situation with you and agree on a realistic payment plan. This could involve spreading your payments over a longer period of time, or making smaller payments more frequently.

If you’re unable to reach an agreement with HMRC, there are other options available, such as applying for a tax-relief order or entering into a voluntary arrangement with your creditors. However, it’s important to remember that HMRC’s Time to Pay service is only intended as a short-term measure. If you’re facing long-term financial difficulties, it’s important to seek professional advice.

Formal insolvency procedures

If your business is in financial distress, you may be considering a formal insolvency procedure such as company administration or a Company Voluntary Arrangement (CVA). These procedures can be helpful in allowing the business to survive a period of financial hardship and HMRC are usually willing to work with businesses that are taking steps to improve their financial situation.

However, it is important to note that HMRC may not always grant extra time to pay your VAT, and you should therefore consider all of your options before proceeding with an insolvency procedure. If you are unsure whether or not a formal insolvency procedure is right for your business, you should seek professional advice from an experienced insolvency practitioner.

Creditors’ Voluntary Liquidation

Creditors’ Voluntary Liquidation (CVL) is a type of insolvency procedure often used by businesses who are no longer able to pay their debts. Although it is a last resort, CVL can offer many advantages over other options, such as administration or bankruptcy. One of the main benefits of CVL is that it allows directors to retain control over the company, which means they can wind down operations in an orderly fashion and minimise job losses.

In addition, CVL can be used to negotiate better terms with creditors, such as extended payment plans or reduced interest rates. Finally, the company’s assets are sold off and the proceeds are used to pay off debts, meaning that creditors are more likely to receive a full or partial return on their investment. Although CVL is a difficult decision to make, it can often be the best option for all parties involved.

Alternative business finance

In today’s economy, small businesses often have a hard time securing the financing they need to grow and expand. Traditional bank loans can be difficult to obtain, and many business owners are hesitant to take on debt. However, there are a number of alternative financing options available that can provide the capital small businesses need to thrive. One option is peer-to-peer lending, which allows businesses to borrow money from individuals or groups of investors.

Another option is invoice financing, which allows businesses to access the cash tied up in their outstanding invoices. There are also a number of government programs that provide financing for small businesses. Ultimately, there are a number of different ways for small businesses to get the funding they need to succeed.

Creditors’ Voluntary Liquidation when you cannot pay your VAT bill

When you can’t pay your VAT bill, it’s time to consider a creditors’ voluntary liquidation (CVL). This is a process whereby your company is wound up by its creditors. It’s a voluntary process, which means that it’s initiated by the company rather than the creditors. However, the creditors must agree to the CVL in order for it to go ahead.

A CVL is typically used when a company is insolvent, which means that it can’t pay its debts as they fall due. If you’re considering a CVL, you should seek professional advice from an insolvency practitioner. They will be able to advise you on whether a CVL is the best option for your company and how to go about implementing on.

Frequently asked questions

What happens if I can't pay my VAT bill on time?

If you are unable to pay your VAT bill on time, you may face penalties and interest charges imposed by the tax authorities. The exact consequences can vary depending on your country's tax laws, but it's essential to communicate with the tax authorities as soon as possible to discuss your situation and explore potential options to resolve the issue.

Can I negotiate with the tax authorities if I can't pay my VAT bill?

Yes, it is possible to negotiate with the tax authorities if you can't pay your VAT bill. Many tax authorities understand that financial difficulties can arise and may be willing to work with you to find a solution. You can contact them to discuss your situation and explore payment options, such as installment plans or extensions. Being proactive in reaching out can demonstrate your willingness to resolve the issue, which may lead to a more favorable outcome.

What should I do if I can't pay my VAT bill at all?

If you find yourself unable to pay your VAT bill at all, seeking professional financial advice is crucial. A tax advisor or accountant can assess your financial situation, help you understand your options, and guide you through the process of negotiating with the tax authorities. Additionally, they can assist in creating a viable plan to address the outstanding VAT liability and avoid more severe consequences, such as legal actions or further financial penalties.


In conclusion, facing the inability to pay a business’s VAT bill can be a daunting predicament with potential ramifications on financial stability. However, it is essential not to lose hope, as raising finance could emerge as a viable option to tackle this challenge.

Exploring avenues for financial support, such as loans, lines of credit, or seeking investors, can inject the necessary capital to meet the tax obligation and prevent further penalties. Additionally, businesses should consider evaluating their financial strategies, cost-cutting measures, and revenue generation techniques to improve cash flow and address underlying financial concerns.

By proactively seeking professional advice and adopting a comprehensive approach, businesses can navigate through the difficulty of unpaid VAT bills and move towards a path of financial recovery and sustainability.

Business Finance specialist at Invoice funding | + posts

Seasoned professional with a strong passion for the world of business finance. With over twenty years of dedicated experience in the field, my journey into the world of business finance began with a relentless curiosity for understanding the intricate workings of financial systems.

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