Being unable to pay VAT on time clearly indicates an unstable financial situation, but failing to meet payments can leave you in an even worse position.
For a business to be unable to pay its VAT on time is an obvious indication of an unstable financial situation, but failing to meet your VAT payments can leave you in an even worse position. If HMRC does not receive your company’s VAT payment by its due date, you will automatically suffer a default surcharge, and this penalty worsens the more subsequent VAT payments are missed. As such, ignoring your business’ inability to pay its VAT on time will only exacerbate an already thorny situation, so it’s essential for directors to get on top of this problem as soon as it becomes apparent that they won’t be able to meet a VAT payment.
Why might a business be unable to pay its VAT on time?
- A surprisingly common reason for missing VAT payments is failing to register for VAT in the first place, which often occurs when a director underestimates the early performance of their company.
- Similarly, forgetting to de-register for VAT is a common cause of payment problems, as it is likely that a business’ income will be declining at this time, so the added burden of VAT can easily become too much to handle.
- Failure to register for VAT at a favourable time will result in a significant bill that a business may not yet be in a good position to pay, and which could set back their ability to pay the tax in the future, as HMRC will calculate the cost of the VAT retrospectively.
- Disorganised debt collection procedures will create issues if a company has to pay its VAT whilst still waiting on payments from sales invoices.
What are my options if I am unable to meet a VAT payment?
- Contact HMRC as soon as it becomes apparent that your business will be unable to pay its VAT on time – Communicating with HMRC as soon as possible will reflect well on your company and increase your chances of arranging a solution that is free of penalty.
- Time-to-pay arrangement – This is a plan that can be arranged with HMRC, allowing your business more time to pay its VAT. HMRC will only agree to this if you can prove that your company’s setbacks are only temporary. You should be prepared to outline how you will raise funds to meet the extended VAT deadline, so seeking professional help is advised, as an experienced insolvency practitioner will be able to negotiate with HMRC on your behalf. If HMRC believes there is a risk that your company is insolvent, they may pursue legal action to ensure that they are paid what they are owed.
If you would like to receive professional help to discuss rescue options, contact Voscap today at firstname.lastname@example.org or 020 7769 6831.