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What happens if your company doesn’t pay VAT?

Once your company is registered for VAT, it then has an obligation to submit regular returns to HMRC. If for any reason it fails to submit these returns or simply does not pay the VAT then HMRC will class the company as being in default. They will begin to charge penalties and potential fees which will only increase what the company owes making the position worse.

What action will HMRC take?

Initially HMRC will contact you to understand why the company is in arrears and will request payment. If the company continues not to pay the outstanding bill then HMRC may pass the debt onto a specialist debt collection agent. The contact will then increase as they attempt to collect in the debt. Bailiffs may be used to collect the debt, if they enter the premises and seize stock or assets, this could have a significant effect on the company.

Ultimately, HMRC may issue a petition for the winding up of your company. The bank account will be frozen, debilitating the company and preventing it from continuing to trade.

We can prevent all of the above form happening, call us today to understand your options

What options do I have?

First of all, there’s no reason to panic, HMRC are no longer a preferential creditor and can be dealt with like any other creditor. There are a range of options are available to you such as informal and formal payment arrangements. If an arrangement can’t be agreed then there other options.

Payment arrangements

The first step and the most important, is to ensure that you know exactly what your business can afford to pay. If you simply accept the installment requested by HMRC and then default, they will have no confidence in the business and may not accept any future requests. HMRC do not accepted reduced settlement on outstanding taxes so they have to be paid in full. The arrangement usually last no longer than 6 -12 months but can stretch further than that in some exceptional cases.

If you have previously had a repayment plan agreed that you haven’t maintained, your tax returns are late or overdue or you haven’t provided sufficient information, HMRC may reject a request for a payment arrangement.

Company Voluntary Arrangement (CVA)

You could place all of your outstanding debt, including your VAT bill, together and make one monthly payment to cover it all over a longer period of time. The timescale is usually between 36 – 60 months and you are required to maintain your ongoing liabilities.

HMRC have strict guidance on what they will accept under a CVA such as the previous compliance of the company in relation to it taxes. They will also require evidence that the company can afford the repayments and have the ability to pay future liabilities to HMRC. There are also interested in what action the company has taken to ensure that it doesn’t fall behind with the VAT again. More information on Company Voluntary Arrangement.

Administration

If your company is insolvent because of its VAT bill, don’t continue trading as normal. You need to take immediate action to protect yourself, the company and its creditors.

Entering into an insolvency process such as administration provides the protection an insolvent company may need. It will prevent any legal action and allow the company time to restructure or recover whilst being managed by an administrator.

Liquidating your company (CVL)

If you don’t believe that the VAT can be paid, you could close your company down.  You appoint a liquidator who sells the company’s assets to pay the suppliers and any outstanding debt is kept within the liquidation. You can walk away from the company at this point and even purchase the company assets from the liquidator. A Creditors’ Voluntary Liquidation may be the right solution for you, call us now for free advice.