Payment problems: if you can't pay the VAT due to HMRC
This guide tells you what you should do if you are having problems paying VAT. It provides information on alternative VAT schemes that can change how much and when you pay, which may suit your business better. It tells you what happens if you submit a VAT Return late or do not pay your VAT in full by the due date. It also includes advice on how to claim back VAT on bad debts.
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Help with VAT payment problems
If you're registered for VAT, you need to make sure you submit your VAT Return on time, along with any payment. If you don't, you could receive a surcharge. So if you think you won't be able to pay your VAT by the due date, you should act immediately. There are several things you may be able to do to help yourself, and HM Revenue & Customs (HMRC) are also there to help you.
How you can help yourself
Make sure you have claimed any VAT back on bad debts, if you are entitled to. See the section below on claiming VAT back on bad debts. This could reduce the amount of VAT you need to pay.
How we can help you
If you still won't be able to make your payment it's important that you contact HMRC right away. Who you should contact depends on your particular circumstances.
- If this is the first time you've had a payment problem, and you've not contacted HMRC already, please contact the Business Payment Support Service (follow the link below to find out more).
- If you're already in contact with HMRC about a payment problem, or already have an arrangement with them, contact the office that you have been dealing with already.
Find out more about the Business Payment Support Service
Important actions you should take
Making contact with HMRC is the most important action you should take, but you should also do the following as a matter of urgency:
- Submit your VAT return on time, even if you can't pay the VAT.
- Tell your bank and your financial advisor about the situation.
- If you are paying by the online VAT Direct Debit service, contact your bank and ask them to stop the next payment.
- Any surcharge or penalty is calculated on the amount outstanding at the due date, so even if you can't pay the full amount on time, pay as much as you can manage. This will reduce the surcharge and could even stop it altogether.
To avoid getting into this situation again, you may find that one of the special VAT schemes makes it easier for you to meet your payments. See the section below on alternative ways to pay VAT.
Failing to pay your VAT on time is a very serious matter. You may have to pay a surcharge or you could face court action or even bankruptcy.
Submitting late returns
If you submit a late VAT return, or you don't pay the VAT due in full, your business will be 'in default'. You may be liable for a surcharge.
To avoid missing any deadlines, you can use an interactive tool which will help you work out when you need to set up your payments (such as setting up a Direct Debit Instruction) or when you need to make your VAT Returns. You can also sign up to receive email alerts reminding you of when returns and payments are due.
Find out more about penalties and surcharges
VAT payment deadline calculator
Alternative ways to account for VAT
Several schemes are available to simplify the way in which small businesses pay and account for VAT. Some of these schemes change when you pay, and some change how much you pay.
- Annual Accounting Scheme - this allows you to pay in monthly or quarterly instalments based on an estimate of your total VAT bill for the year. You will only have to complete one VAT Return each year.
- Cash Accounting Scheme - this allows you to pay VAT only on the payments you receive from your customers, rather than the invoices you issue. However you can only reclaim the VAT incurred on your purchases once you pay your supplier.
- Flat Rate Scheme - this allows you to record the VAT-inclusive total of all your business supplies - including exempt supplies - and apply a flat rate percentage to it in each period. The result is the VAT you owe HMRC.
Read more about the Annual Accounting Scheme
Read more about the Cash Accounting Scheme
Read more about the Flat Rate Scheme
Claiming VAT back on bad debts
If you have supplied goods or services but your customer hasn't paid for them, you may be entitled to a VAT refund. To make a claim, you need to:
- Have paid and accounted for VAT on the sale. This means that you cannot claim bad debt relief if you are on the Cash Accounting Scheme.
- Wait at least six months after the payment was due.
- Keep a copy of the VAT invoice and account details.
To make a claim, you need to state the amount of VAT you are claiming in Box 4 of your VAT return. If the debt is paid later on, then you have to repay the VAT portion of it to HMRC.
Read about reclaiming VAT on bad debts on goods or services supplied by you
More useful links
Find out about how to pay VAT
Read about the deadlines for submitting your VAT return and making payments
Find out about surcharges for late payments
Find out how VAT schemes differ to standard VAT accounting
Get information about the requirements for filing and payment deadlines
Read more about failure to pay in VAT Notice 700 S21.2.4