HMRC is a demanding creditor and it’s understandable that directors get nervous when they’re struggling to pay their VAT. But there are several options available to help if you’re struggling and it’s important to take action early on to avoid further penalties.

Every three months (or a quarter) you need to submit a VAT return which details all the sales and purchases you’ve made as a business. This is then used to calculate your VAT bill which must be paid within seven days after the end of the three month period. If you miss this deadline you can be hit with substantial financial penalties which include interest and even liquidation of your business.

The first thing you need to do if you’re struggling to pay your VAT is to contact HMRC as soon as possible. They’re usually very sympathetic but they will want to know why you haven’t paid and will try to business debt advisors work with you to find a solution. If you’re unable to make your payment they can offer you a Time to Pay arrangement where you’ll be able to repay the debt in manageable monthly instalments over an agreed period of typically 12 months. However, this is only offered if you can prove that your business will be able to pay in the future and your tax affairs and payment history are good.

You should also consider trying to secure finance from other sources such as banks if you’re able to afford the repayments. However, you should only pursue this option if you’re confident that you can make the repayments as HMRC will still be applying surcharges and this will increase the amount you need to pay. Alternatively, you could seek insolvency advice on options such as a Company Voluntary Agreement where your company will be closed and the recovered assets can be used to pay off creditors including HMRC.

Failing to pay your VAT can have serious consequences for your business. In addition to the financial penalties that will apply, it can damage your relationship with suppliers and customers who may not be willing to trade with you if they know you’re in financial difficulty. Furthermore, HMRC will likely place a CCJ against your business which can impact its credit rating and stop you from being able to borrow money in the future. Ultimately, if you continue to struggle to make payments you should seek advice from a licensed insolvency practitioner about the options available for your business such as administration or a Company Voluntary Liquidation. Our expert team are able to advise you on your best options to save your business.