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What Will Happen if I Pay my VAT Late?

Posted 29th Mar 2019 in Tax

What Will Happen if I Pay my VAT Late?

We completely understand that it can be very tough to handle all of your funds and expenses when you’re running your own business, nevertheless if you’re paying your VAT late to HMRC (Her Majesty’s Revenue and Customs) you will face a surcharge liability notice or penalty, depending on if this is the first time you’ve paid late or not. Keep reading to find out more about what happens if you pay your VAT late, and how you can avoid it happening.

Key points to be aware of when paying VAT late

HMRC isn’t completely void of understanding when it comes to late VAT payment, if this is the first time you’ve paid your VAT late within 12 months, you may avoid surcharges. If you’re overdue on a payment, you’ll be sent a ‘surcharge liability notice’ (a warning letter). This means you’ll be put in a surcharge period for 12 months. You’ll need to avoid missing another deadline within that 12-month period, as you’ll remain in debt management until your company makes three payments in a row.

How can I prevent late VAT payments

To avoid being in a position where you need to pay your VAT late, there are a number of options to help prevent this from happening and becoming a serious issue. You should consider seeking the help of an accountant to carry out an audit or business review to work out any cash flow problems and suggest solutions to fix this before it becomes a serious problem.

Struggling businesses may request a TTP (time to pay) deal with HMRC. This gives you the option to repay the debt over a few months and up to a year in instalments. HMRC investigates companies that are late paying their VAT, to determine if this is a reoccurring issue and if a distraint letter needs to be sent.

What options are available?

There are several options available for companies that have not paid the VAT they owe. You can arrange a TTP (time to pay) deal with HMRC, this involves securing emergency backup financing to pay off your VAT once you’ve received a distraint letter. This means you can settle on an agreement to pay off your VAT gradually, without seriously affecting the cash flow of the business. Another way of raising the money to pay off your VAT is by raising cash via invoice factoring.

Set up a Direct Debit

If they think that you genuinely can’t pay now but will be able to pay in the future, HMRC may offer you extra time to pay. They’ll offer you the option to set up a plan to pay in manageable instalments by Direct Debit on agreed dates. You do however need to pay interest on the amount due.

If you are worried about paying off your VAT debts or have received a distraint letter from HMRC, we hope that this article helped give some guidance. If you’re still unsure about VAT filing or need any further advice, please feel free to get in touch.