Late VAT payment - the consequences

We can all wax lyrical about the need to budget for VAT and not treat the VAT we collect as our own, but sometimes business isn’t that straightforward. Things happen and, on occasions, it simply might not be possible to pay across the VAT when it falls due, which is normally the 10th working day of the month after the return is submitted.

Should you find yourself in this situation, there are a number of things you can do, including arranging a VAT loan via Productivity Finance, but let’s start with what you can’t do.

If you don’t pay, HMRC will take enforcement action, which could result in the liquidation of your business, so taking no action at all in the hope that things will get better before HMRC catches up with you simply isn’t an option. You must do something, and the sooner you do it, the better.

Time to Pay scheme

The normal advice when not being able to pay a creditor on time is to talk to the creditor, explain the circumstances and ask for additional time to pay. This is no different with HMRC.

By talking with HMRC, you might be able to set up an arrangement to pay the bill in monthly instalments over three or even six months under the Time to Pay (TTP) scheme.

To be eligible for Time to Pay, generally, your business must have no other tax debts and no other HMRC payment plans set up. Importantly, HMRC must also be convinced that this is a temporary situation and your business remains viable into the future.

Your proposal to pay must be reasonable, but equally it is important not to offer more than you can afford as falling behind on any plan could end up causing you bigger problems in the long run.

Late payment interest will be payable at 3.25% and there may be a penalty surcharge if you haven’t acted promptly and the wheels of enforcement action are in motion.

To discuss a Time to Pay arrangement, call the Business Payment support service at HMRC on 0300 200 3835

VAT loans

If you prefer not to deal with HMRC or know that you don’t qualify for Time to Pay, a VAT loan could be the answer. A VAT loan is a simple, short term facility that allows you to pay HMRC on time and spread the cost in your cash flow, normally into monthly instalments. If there is a lump sum of money due, perhaps from a large project or the sale of an asset, it may be possible to agree a VAT bridging loan which is repaid in one go.

Some businesses simply prefer spreading the VAT across each month, regardless of cash flow, and if this is your situation, we could help you organise a revolving VAT facility with one of our funding partners.

Commercial loans and asset finance

There have been times when we have found during the free consultation that we do before arranging any facility that the underlying cause of not being able to pay the VAT on time, isn’t cash flow related at all, but caused by investment in other areas of the business. In these circumstances, it is normally more appropriate to look at refinancing the investment to replenish the reserves.

In any circumstances, the Productivity Finance team is on hand to help. Whether it’s a temporary period of distress or simply inconvenient timing, we’ll be confident of finding a solution. Please contact us for a chat.

Late VAT payment - the consequences

By: Paul Marston

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