Limited companies turning over more than £90,000 over 12 months must register for, and pay, VAT. You should make paying your VAT bill on time and in full a priority since the consequences of not doing so can be severe. If your limited company cannot pay VAT, our expert tax lawyers are on hand to help. We will advise you on your options and help you devise a strategy that enables you to meet your tax obligations while keeping your company afloat.

 

For a confidential free discussion, call us today on 01908 414990,  alternatively email us at Hello@altion-law.co.uk or complete our Free Enquiry Form and we will call you back.

 

What is VAT?

 VAT is a consumption tax. The UK government levies VAT on most goods and services at each stage of the supply chain. VAT-registered businesses must charge VAT on their goods and services and pay it to HMRC.

 

How much VAT must you charge?

The amount of VAT you must add to your goods or services depends on the nature of the products and how they are used. Most items are subject to the standard VAT rate, which is currently 20%.

 

Who has to pay VAT?

Businesses with a VAT taxable turnover exceeding £90,000 must register for VAT. Businesses can choose to register voluntarily if their turnover is less than £90,000.

 

What happens if a Limited Company cannot pay VAT?

HMRC charges interest on overdue VAT payments. The interest begins accruing from the first day the payment is overdue.

In addition, since January 2023, HMRC has imposed late payment penalties on VAT payments not made by the due date. The late payment penalties kick in once your VAT is overdue by 16 or more days and increase as follows:

  • If your VAT is between 16 and 30 days overdue, the late payment penalty is charged at 2% of the VAT you owe on day 15.
  • If your VAT is 31 or more days overdue, HMRC charges two late payment penalties. The first is calculated at 2% of the VAT outstanding on day 15, plus 2% of anything still outstanding on day 30. The second late payment penalty is calculated at 4% per year on the outstanding VAT balance which is charged every day from day 31 onwards until you clear your account.

If the VAT you owe is substantial, the interest and late payment penalties can soon add up, and your limited company can end up facing a large VAT bill. Accordingly, it’s crucial to put measures in place to address the issue early on.

 

What are your options if your Limited Company cannot pay VAT?

 A limited company that cannot pay VAT has several options available to it. They include the following:

  • Entering into a ‘Time to Pay Arrangement’ (TTP)

A Time to Pay Arrangement or ‘TTP’ is a payment plan under which a taxpayer agrees to repay the VAT they owe to HMRC over a specific period. The TTP arrangement can include any interest and penalties due on the outstanding VAT amount.

Under a TTP arrangement, the taxpayer usually repays the sums owed to HMRC over a 12-month period. However, HMRC may be amenable to longer payment arrangements if a company’s financial situation warrants it.

  • Securing Emergency Funding

 Securing emergency funds such as an overdraft or loan may assist you in paying your VAT bill and avoiding interest and late payment penalties. However, you must check the applicable interest rates and be sure that your company can make the repayments before proceeding.

  • Considering Rescue Packages or Restructuring options

If your limited company cannot pay VAT as well as other debts, you may need to consider initiating a rescue package or restructuring to meet your liabilities.

One possible solution is a company voluntary arrangement, or CVA. A CVA is a rescue package that involves the company proposing a repayment plan to its creditors to pay off a percentage of the debt over an agreed period. CVAs allow your company to continue trading while it repays its debts, but at least 75% of your creditors must agree to it. They will likely only do so if you can demonstrate that your company will return to profitability if given some breathing space to trade itself out of difficulty.

If your limited company cannot pay VAT, timely legal advice is crucial. At Altion Law, our teams of HMRC and insolvency solicitors and barristers frequently collaborate to assist clients facing difficulties paying their tax bill and other debts. We will take the time to develop a thorough understanding of your company’s financial situation before recommending a strategy that realises your commercial goals and protects your position.

 

For a confidential free discussion, call us today on 01908 414990,  alternatively email us at Hello@altion-law.co.uk or complete our Free Enquiry Form and we will call you back.