If you have an outstanding VAT bill you can speak directly to HMRC to explore the possibility of negotiating a Time To Pay Arrangement (TTP). This is a payment plan directly with HMRC, that allows you to repay outstanding tax liabilities over a 12-month period. TTPs can run for a number of years if the debt is sizeable, but this is rare.

If your company is insolvent and has other outstanding debts alongside a VAT bill that you can’t afford to pay, a more formal insolvency procedure may be more appropriate to deal with the company’s situation:

• Formal repayment plan
  Companies can repay their VAT bill through a Company Voluntary Arrangement (CVA). A CVA is formal repayment plan, that allows companies struggling with debt to pay off all their outstanding liabilities in affordable monthly instalments. The process can only be carried out by a licensed insolvency practitioner, who will consider all the company’s incomings and outgoings to see how much the company can afford. The formal repayment plan allows companies to continue trading whilst in the agreement, with any remaining unsecured debts cleared at the end of the process.
  Find out more about Company Voluntary Arrangements
• Formally wind up and close an insolvent company
  If the company is insolvent and cannot cover the cost of their VAT bill, or any other outgoing debts, the company could enter a Creditors Voluntary Liquidation (CVL). The procedure will see the company formally wound-up and its unsecured debts, including VAT, written off, allowing the director to walk away.
  Find out more about Creditors Voluntary liquidation
• Close your company down and start again
  It is possible to liquidate a company and continue to trade the business through a newly registered or existing company. This is commonly known as a pre-pack liquidation, and will see the initial company with debt, including the VAT bill, closed and liquidated, writing off its unsecured debts.
  
  These are some of the key differences when referring to a pre-pack liquidation which are agreed with the liquidator prior to a company entering CVL:
  
  • Some or all of the insolvent company’s assets can be purchased and transferred.
  • The business can continue uninterrupted.
  • Employees have the possibility of being transferred under TUPE.
  • Directors can purchase assets from the insolvent company through a CVL, whether for personal or company use.
  Find out more about Pre-pack Liquidations

• Restructure the company
  An administration procedure involves a licensed insolvency practitioner taking control of the company and making the necessary changes to make it profitable and viable for any potential buyer. The company can either return to profitability, be bought by a third party, or enter into a CVA, or CVL as an exit strategy, following the successful conclusion of the administration.
  Find out more about Administration

What is VAT and how often do I have to pay it?

Value Added Tax (VAT) is a tax that companies in the UK pay, when their taxable turnover exceeds £85,000 in a 12-month period. The threshold means that companies must become VAT registered. Companies must return their tax return every 3 months with any tax due to HMRC. An unpaid VAT bill is classed as an unsecured debt and is the responsibility of the company to pay.

What are the consequences if a limited company doesn’t pay VAT

If a VAT bill is not paid on time or at all, HMRC have a process which enables them to retrieve the debt.

• Notice of Assessment
  If your company doesn’t submit a VAT return, a ‘notice of assessment’ is the first letter HMRC will send. This document outlines how much they believe the company owes and will give you 30 days to respond.
• Late payment penalties
  HMRC typically imposes penalties for late payment of VAT. The penalties are calculated as a percentage of the outstanding amount and can increase over time.
• Interest charges
  In addition to late payment penalties, HMRC may apply interest charges on the unpaid amount. Interest rates can vary and are typically applied from the date the payment was due.
• Surcharge liability
  If a company continues to pay late, HMRC may apply surcharge liability. This means additional penalties for repeated late payments within a specified period.
• Enforcement action
  HMRC has the authority to take enforcement action to collect unpaid taxes. This may include seizing assets, obtaining court orders, or using debt collection agencies.
• Company closure
  If a company continually doesn’t pay its VAT bill, HMRC may take legal action to wind up the company. This could lead to HMRC applying for a winding-up petition, which could lead to company closure.

Can I be held personally liable for limited company VAT debt?

Usually, no. VAT belongs to the company and is the responsibility of the company to repay. Directors are protected by limited liability, which means that their finances are separate to that of the company. 

If a company enters a formal insolvency process, an insolvency practitioner will investigate the conduct of the directors leading up to and during its insolvency. If they find evidence of misconduct, wrongful trading or fraudulent trading, you could become liable for some or all of the company’s debts, including VAT.  

How we can help

If you are struggling to pay your VAT bill, or any other unsecured debts, it’s important to understand what options are available for your limited company. We offer free advice on navigating insolvency options and formal repayment plans, allowing you to make an informed decision that will suit your company’s needs.

1. Speak with our initial advisers via phone or online chat. If we can help, we will arrange a free consultation with one of our consultants to discuss your situation in more depth.
2. During the consultation, we will advise if an insolvency procedure is the most appropriate route forward or what alternative options are available.
3. After your consultation, if there is an appropriate route forward, we will issue the relevant documentation for you to formally engage us.

In summary

If a limited company’s taxable income exceeds more than £85,000 in a 12-month period, then they must pay VAT to HMRC. A VAT bill should be paid every 3 months, if it’s late or unpaid, companies can face possible surcharges and penalties from HMRC. If you are struggling to pay your VAT bill, there are options to consider, but not limited to:

• Reach an agreement with HMRC – Time To Pay Arrangement
• Formal repayment plans – Company Voluntary Arrangement
• Close the company down – Creditors Voluntary Liquidation
• Close the company down and start again – Pre-pack Liquidation

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