Arrears of VAT to HMRC are a bad thing – not just because it indicates that you have some kind of cash flow problem, but also because it may mean that your file is marked for closer scrutiny for some time to come. It can also involve you in having to pay significant penalties.

Advice for Avoiding HMRC VAT Problems

Keep VAT Collected in a Separate Bank Account
One of the most common problems that companies with cash flow difficulties face, is paying VAT, especially where that company is on a three monthly return cycle. Whilst companies are entrusted by HMRC to collect VAT on its behalf, unless the VAT is placed into a separate account, it can get “lost” in the account used to run the business.

Currently for every £1 of sale that your company makes, you will charge 20 pence VAT, which although you collect it when your customer pays, needs paying over to HMRC every three months. Obviously you can offset your input tax, but most companies will make a net payment of VAT to HMRC.

Don’t Use VAT to Fund Your Company’s Daily Cash Flow
When facing financial difficulties, it can be tempting to use the VAT collected from customers to fund your company’s daily cash flow in the hope that you will be able to replace the VAT from other sales and make your quarterly VAT payment to HMRC on time. Regretfully, this can prove to be a decidedly poor decision, if you are unable to meet your VAT liability on time.

HMRC are now far more focused on collecting outstanding VAT liabilities and in some cases where the company persistently fails to pay VAT to HMRC on time, HMRC will most certainly look at instigating some kind of redress.


Complete Your VAT Return On Time
Usually, where you are late in paying over VAT to HMRC, they will in the first instance send you a reasonably polite reminder. Should you fail to deal with this or indeed fail to pay over the VAT you owe to HMRC, then that will be followed up with a rather more sternly worded letter informing you that court action may be imminent.

Ask For Help if You are Unable to Pay the VAT You Owe On Time
If you have any doubts about your ability to pay HMRC the VAT that you owe on time, then you should really contact the HMRC VAT office dealing with your affairs and explain the situation to them. Whist HMRC are much sharper now on collecting outstanding VAT, they are perhaps not quite as efficient as dealing with genuine issues that you may have in respect of your cash flow difficulties.

We would suggest, that if you have any concerns at all about being able to meet your HMRC VAT liability, that you contact us immediately. We have extensive experience in dealing with HMRC both in respect of VAT arrears and also PAYE and NI arrears. We know exactly what information HMRC will need before they will consider looking at your VAT arrears in more detail.


Actions HMRC Take Against VAT Arrears

In the event that you do nothing when faced with HMRC VAT arrears, then HMRC will at some point take action against you. The four most favoured options are as follows:

  • Issue proceedings against you in the local county court. Should HMRC be successful and obtain judgement against you, then they will look to enforce that reasonably quickly. This will involve additional costs on top of the VAT that you owe.

  • Once judgement has been obtained, HMRC can then arrange for bailiffs to attend your premises to take control of your assets – this is a really dire situation and one that you can easily avoid by contacting us as soon as you have any correspondence from HMRC in respect of your VAT arrears.

  • HMRC are now using the threat of a winding up petition to a greater degree than before. Again, this is a dire position – should you do nothing about your VAT arrears and the threat of a petition for winding up, then HMRC will advertise the petition. Once the petition is advertised, your bank will, by law, freeze your account immediately. The first you will know about this is when you try to make payments and find that nothing will go through because the bank froze the account.

  • HMRC VAT, are also now using a process which demands, that you put up a bond to cover a number of VAT returns. Basically where you have consistently been late in paying your VAT or where you have considerable arrears of VAT, then HMRC will insist that you either deposit with them an amount to cover what they assess – usually this will be two periods worth of VAT, or arrange for a bond to be lodged with them. The effect of both is pretty much the same – it places an extra burden on your already stretched cash flow.


Strategy for Sorting Out Your VAT Problems

As soon as you have any concerns at all about either paying HMRC the VAT that you owe, or knowledge that would suggest that you may have a problem, then we would stress the importance of talking to us, in order that we can advise you on the best strategy for dealing with your VAT arrears.

We can provide you with a clear strategy for sorting your VAT problems. We are happy to meet with you, to listen to your problems and concerns.

Offices in London and Nottingham

We have offices in London and Nottingham. We offer free no obligation first consultations at either of our offices, or we can travel to meet at a convenient location.


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