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I can't pay VAT or PAYE - Will HMRC give me time to pay?

22nd May, 2023
Keith Steven

Written ByKeith Steven

Managing Director


07879 555349

He has rescued hundreds of companies and helped many of them turn around using CVA or pre pack. Could he help YOUR company?! Call him now 07833 240747

Keith Steven

Table of Contents

  • What are the penalties if you get behind on VAT payments?
  • What are the available options for VAT arrears?
  • HMRC Helpline Phone Number
  • What are the available options if I can’t pay PAYE?
  • Personal Liability
  • Tips for dealing with HMRC tax arrears

What happens if we can’t pay the VAT our company owes? 

If your business has tax problems, i.e. can’t pay VAT or PAYE, then the company is probably insolvent! You must act to do something about this and we will show you how.

If your business or company has not paid the VAT across to HM Revenue & Customs (HMRC), then there is a strong possibility HMRC will take action against the business. Basically, it’s tax payer’s money and the tax collectors are there to collect it. There are no grey areas, just black and white. After all, HMRC has heard every excuse and will know your company is in financial difficulty, or the tax would have already been paid.

When companies face cashflow crises, management is struggling to cope and failure is imminent, often the major creditor pressure is from one source – HMRC.

As of 1st December 2020 HMRC became a preferential creditor, now ranking ahead of the bank’s floating charge.  Consequently, this may well mean that lenders who have issued loans, that you have personally guaranteed, get less recovery.  This risks exposing you financially.

Banks worry about the pressure that HMRC can bring to bear; bailiffs, distraints, winding up petitions. These can precipitate the failure of the company and bankers worry about their ability to control this. What happens if their client gets a winding up petition from HMRC?

What are the penalties if you get behind on VAT payments?

If you file your VAT return late or do not pay then this is known as a default.  Various penalties and surcharges are applied. Surcharges will increase by percentage according to the number of defaults in a 12 month period.  The percentages also increase the higher the turnover as they are of the view that larger companies should have better systems in place for paying VAT.

From 1 January 2023, new penalties for late VAT filing and payment now apply. This applies to everyone who is to submit a VAT return for accounting purposes, on or from that date.

Interest which is applied to late VAT payments and late HMRC payments has also changed.

It is important to understand the changes; some being an improvement on the previous regime, but some being ways to catch out taxpayers and related agents. For that reason, we explain it for you here (You may also see this page on the Gov.uk website, for details).

Late Filing of VAT

This system is now points based. Taxpayers will receive a point for each VAT return that is filed late. When the taxpayers’ total number of points reaches a threshold, a fixed £200 penalty will be applied. This penalty is to be applied for each and every additional late VAT return after reaching the threshold.

The frequency of which the taxpayer files their VAT returns will determine the threshold:

  • Annual returns – 2 points
  • Monthly returns – 5 points
  • Quarterly returns – 4 points

How long do my points remain?

It should be noted that there are ways to reset your points.

  1. If the taxpayer reaches their penalty threshold then points expire after a period of compliance
  2. If the taxpayer is below their penalty threshold then points expire after 24 hours

What is a period of compliance?

Ultimately, this refers to a period in which all returns have been filed on time and all outstanding VAT returns for the previous 24 months must have been submitted. Following this period, the taxpayers’ points total will reset to zero.

You can see the table below for more information

Submission frequencyPenalty points thresholdPeriod of compliance
Annually224 months
Quarterly412 months
Monthly56 months

Is there a link between the amount of late filing penalty and the VAT due on the return?

Unlike in the previous regime, this time round there is no relation. This means repayment traders and taxpayers filing null returns will be in the midst of late filing penalties for the first time.

Late VAT Payment

The changes have been made to encourage struggling taxpayers to reach out and engage with HMRC as soon as possible.

Penalties applied are based on how late the payment is. So the sooner you pay, the lesser the penalty rate.

  • Between days 1 and 15, if you agree on a payment plan or pay the owed VAT in full, no penalty will be charged
  • Between 16 and 30 days overdue, a first penalty will be calculated at 2% of the VAT unpaid on day 15.
  • If at 31 days or more overdue, along with the first penalty, you will be charged an additional 2% on the VAT owed on day 30
  • From day 31, a second penalty applies, charging daily at an annual rate of 4% of the outstanding amount, for the duration it remains

With both penalties in mind, if a Time to Pay Arrangement (TTP) is agreed upon with HMRC then this is treated the same way as a payment. The penalty clock will stop on the date of the TTP application. If the TTP terms are broken, full penalties will be charged and it will be as if the arrangement never existed.

What are the penalties if you can’t pay your PAYE payments?

PAYE is due to be paid as follows:

  • The 22nd of the next tax month for those who pay it monthly
  • The 22nd after the end of the quarter for those who pay it quarterly
  • The 19th of the month for those who pay by cheque/post

PAYE is different in that HMRC will know how much you owe due to the Real Time Information (RTI) system they have. HMRC will allow for one PAYE late payment per tax year without charging penalties, but if you are late paying more than once then the penalties range from between 1% and 4%.  The rates rise to 5% if you payments are more than 12 months overdue. PAYE arrears tend to build up if you have taken on staff expecting a lot more business that doesn’t arrive or retaining staff when you should really let them go.

KSA Group are experts at negotiating with HMRC.  HMRC are “sophisticated creditors” in that they know all the procedures and rules.  You therefore need professional advice to make sure of the best outcome to save your business and stop the bank closing it down.

Do not be tempted to borrow money from online lenders to pay a HMRC bill unless you are sure you can pay it back.  These loans almost always have a personal guarantee requirement so you can become liable for the company’s debts!

What are the available options for VAT arrears?

There are some options for dealing with tax arrears, but many people don’t know where to start.

HMRC Helpline Phone Number

It is worth calling HMRC’s Business Payment support services telephone number on 0300 200 3835. It’s open from 8am to 8pm Monday to Friday, and from 8am till 4pm at weekends.

Options include:

Ask for time to pay the debt, or a TTP as we call it, if your company can’t pay VAT. HMRC provides a “Business Payment Support Service”.  Using this service, all SMEs which have cashflow issues and good compliance, should be able to get a Time to Pay arrangement with HMRC. If you need help, call us or call the HMRC’s Payment Support Service on 0300 200 3835.

HMRC will want to know:

  • Your company’s tax reference number
  • Your name and/or the name of your business
  • Your/the business’s address including the postcode
  • A contact telephone number
  • Details of the tax that you believe your company will have difficulty paying

If you contact this service, you will need to explain why:

  • Your company is unable to pay in full and on time
  • What you have done to try and raise the money to pay the debt
  • How much your company can pay immediately
  • How long you think your company will need to pay the rest
  • Depending on why your company can’t pay, what your payment history has been and how long it needs to pay the rest.. HMRC will ask you a number of questions so that they can judge the company’s ability to pay this debt via future payments.

What are the available options if I can’t pay PAYE?

PAYE is a different tax than VAT in that it HMRC know what you owe.  However, if you are falling behind and HMRC are putting on the pressure then the options the company have are exactly the same as not being able to pay VAT.

 

Ask us, KSA Group, to arrange a time to pay deal if your business can’t pay VAT or PAYE. As licensed insolvency practitioners, we are very highly regarded by HMRC and deal with them in offices right across the country. We will need to know all of the above details and also do some financial forecasting work in order to establish what the company can afford to pay back and over what period. Call now for this expert service on 08009700539

Consider a company voluntary arrangement. This will take the pressure off straight away. We are the UK’s leading CVA experts with huge experience of arranging CVA deals with creditors, including HMRC. This allows tax debts to be partially written off. It also allows your company to cut costs, make redundancies and plan a turnaround.

The administration or pre pack administration solution. These very powerful techniques can help protect the business assets and sell them to new company or third party. This will protect the company from aggressive legal action by HMRC.

Can you introduce more money into the company to pay the tax debts? Could you raise money from the bank, or get a VAT Loan for example?

Visit this trading out guide to see how to deal informally with the problem. This can avoid formal approaches like voluntary liquidation, CVA, compulsory liquidation and administration.

It is estimated that over 200,000 companies are on some form of payment plan and many are failing to keep up with them. Non-payment of this tax is a failure to comply with the tax legislation and also signifies publicly (loud and clear to HMRC) that the company is insolvent. So, you need to act properly and responsibly by dealing with this serious threat to your company. If your company needs urgent help – call us now for free on 08009700539 or email our advisors on help@ksagroup.co.uk. We can help with a time to pay deal or other turnaround options.

 

Personal Liability

If the company is insolvent, you could be personally liable for the debts if you continue to trade whilst doing nothing about the problems the company faces. Wrongful trading can be a real problem if ongoing tax arrears are building up and the company enters insolvent liquidation. Failure to pay PAYE or VAT could result in a personal liability notice from HMRC.

So, act carefully, keep notes of any decisions and always write down names of people you speak to at HMRC. Take advice from experts, and above all, act promptly as delay may just lead to more problems for you as directors. If you want to know more about wrongful trading, click here.

 

Tips for dealing with HMRC tax arrears

Don’t wait until legal actions have been taken against the company to ask for a Time to Pay deal with HMRC. It is better to ask for help BEFORE arrears build up.

Try to plan the cash flow of the business well in advance. You have a legal obligation to do this! If the directors do not think the company has sufficient cash to trade, they should consider the obligations and plan a way forward.

Don’t be too ambitious in planning repayment. Your company will have bad months as well as good, so be careful with the cash flow forecasts. Do you want a free cash flow model? Email keiths@ksagroup.co.uk for advice.

Ask for 18 months to pay back PAYE, knowing that you may get 9-12 months at most. Ask for 12 months for VAT and they might accept or offer 6 months.
If your cash flow forecast says the company can be viable, but the business cannot afford a relatively fast repayment programme, then you must consider a company voluntary arrangement (CVA).

Has HMRC issued a winding up petition or threatened to petition against your company because you can’t pay VAT or PAYE? If so, get help now by calling our free helpline or see this page for more details on dealing with a winding up petition.

Don’t wait too long to get professional turnaround help. Call the experts on 0800 9700539