HMRC Bill (1)

VAT Debt

If a business is experiencing financial troubles surrounding VAT payments, this is an indicator that the business is likely insolvent, or fast approaching a state of insolvency.

It is crucial that if your company is struggling to uphold its VAT commitments you seek help from a licensed Insolvency Practitioner immediately. If a company continues to trade once it has reached insolvency company Directors can often become liable for the outstanding company debts.  

VAT Problems – How they Happen

Sometimes, cash-flow issues are not the root cause of VAT arrears. There are a few instances which can unknowingly result in a business failing to make these payments, which in turn can cause costly repercussions once these mistakes have been identified.

Failing to Register a Business

This happens when a business fails to register for VAT in the primary stages of trading. This can happen for a number of reasons, but most prominently it is due to a company under estimating its success or performance, growing much quicker than anticipated.

Failing to un-register

Once a company is registered for VAT, it is important that this is then un-registered at the appropriate time. If the company remains registered the burden of tax commitments can accelerate their financial struggles, particularly if the revenue is already suffering.

Financial Commitments

Lastly, and perhaps most obviously a company which is struggling to maintain steep financial commitments can wind up in arrears with HMRC too. When this is the case, ignoring the situation will only make it worse it is always best to face these situations pro-actively and seek expert advice.

What to Expect?

Tax payments are a compulsory outgoing which should always be forecast in the operation and trading of a business. Of all the taxes, VAT is one of the most if not the most important and thus the one that HMRC will pursue with the most force.

Once a company cannot meet the mandatory tax payments to HMRC it is important to seek expert advice and consider practical solutions and options. Firstly, alerting HMRC of financial difficulties could increase the amount of viable options, and the likelihood of HMRC accepting these solutions.

VAT Notice of Assessment

HMRC are alerted immediately of any missed or late payments, thanks to their digitized system. As a frequent occurrence their process for resolving these issues is incredibly streamlined, beginning with letter and written warnings, which will escalate further if ignored.

This initial letter is called a Notice of Assessment and it is sent to alert a company to their debts. It will document the total amount of outstanding debt and a period in which you have to respond, which is typically 30 days unless otherwise stated.

What can I do?

Time to Pay Arrangement: This is an agreement by both the HMRC and the company in which they arrange payment of any outstanding VAT arrears in installments over a period 12 months. In order to agree to this solution, HMRC must confidently assess your ability to commit to regular payments ensuring their debts are recovered. This assessment will be formed, in part by your HMCR tax history. A company is more likely to reach an agreement with HMRC when they have consistently paid their taxes and have a good track record of reliability until this point.

Emergency Financing: This solution injects emergency funding into the business which allows any cash-flow problems to be addressed. This money should be used against outstanding arrears such as VAT repayments.

Business Recovery Solutions: Recovery options may be a viable option, depending on the circumstances of your business. These include; CVA (Company Voluntary Arrangement) and Administration. If you’d like to consider these options get in touch with a Business Recovery Expert or Insolvency Practitioner to discuss whether these are appropriate solutions for your company.

Company Closure: Voluntary Liquidation is the final option for a company which can no longer survive. This releases assets from within the company which are then used against outstanding company debts. In order to pursue this solution, you will need to secure the assistance of an Insolvency Practitioner in order to manage proceedings.


There are consequences and penalties for delayed or missed VAT payments and HMRC will likely always pursue these. If you are continually missing these payments due to financial struggles these penalties and charges will only worsen this situation. If you feel your financial troubles are escalating, speak to us immediately.

These penalties and charges worsen depending on the number of missed payments and the amount of turnover a company generates. The first late payment will receive no charge but if this continues it can reach a charge of up to 15% of the unpaid tax.

Distraint/ Distress Order

In cases of multiple missed payments and significant arrears HMRC will escalate the case upwards, issuing a Distraint/Distress Order. This letter warns the company of HMRC’s intention to pursue payment with bailiffs and repossession of assets.

Can Credit Cards be used for VAT Payments?


Providing these are corporate/company credit cards issued by Mastercard or Visa. If a company Director attempts to use a personal credit card this payment method will not be accepted and should not be considered of a way of settled VAT arrears.

Electronic card payments can be made on the HMRC website.

Corona Virus Business Support

Due to the fall out of the COVID-19 Pandemic, the UK government has allowed businesses the option to defer their VAT payments.

The initial scheme was set up to defer payments ranging from 20th March 2020 to June 30th 2020 until the 31st March 2021. If companies are still not in a position to pay VAT by this date, there is a second scheme running until the 21st June. This scheme entitles businesses to clear their arrears over a period of 11 months, in which they will accrue 0 interest on their debts. The deadline for clearing outstanding debts is January 2022.

In order to utilize this scheme companies must:

  • Owe VAT from the previous scheme
  • All VAT return declarations must be comprehensive and up-to-date
  • Have registered or joined this scheme before the closing deadline (21st June)
  • Commit to mandatory Direct Debit payments.

If you are having trouble making payments to HMRC or are concerned about your financial survival get in touch with us to discuss your options. Our no obligation consultations offer you genuine, pro-active advice to help resolve your problems in the most appropriate ways.