Company VAT arrears

VAT arrears are among the most dangerous debts a company can carry, because the money was collected from your customers on HMRC's behalf and then spent on cash flow, and HMRC treats unpaid VAT very seriously. It is one of the most common triggers for HMRC enforcement and, ultimately, a winding-up petition. If you cannot pay a VAT bill, the worst thing you can do is file the return late or not at all and go quiet. The better path is to file on time even if you cannot pay, then contact HMRC quickly to propose a Time to Pay arrangement, usually over up to twelve months, backed by realistic figures. Persistent VAT arrears alongside other tax debt is also a strong signal that the company may need formal rescue or an orderly closure. Acting early, while HMRC is still willing to talk, gives you far more room than waiting for a demand. HMRC, gov.uk

Key facts

Why it is serious: VAT is collected from customers for HMRC, then spent
First step: File the return on time even if you cannot pay
The opening: A realistic Time to Pay arrangement, usually up to 12 months
Red flag: VAT arrears with other tax debt often means formal advice is needed

File on time, then talk to HMRC

Late or missing returns make everything worse and add penalties. File on time, then propose a realistic plan. Use our Time to Pay affordability calculator to work out what you can sustain before you call.

Common questions

Can I go to prison for unpaid VAT?

Simply being unable to pay VAT is not a crime; it is a debt. Deliberate VAT fraud is different and serious. If the company genuinely cannot pay, engage with HMRC and take advice, do not hide.

Will HMRC accept a payment plan for VAT?

Often yes if you engage early and the plan is realistic and affordable, usually over up to 12 months, and you keep filing and paying current VAT on time.

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Company VAT arrears. VAT arrears are among the most dangerous debts a company can carry, because the money was collected from your customers on HMRC's behalf and then spent on cash flow, and HMRC treats unpaid VAT very seriously. It is one of the most common triggers for HMRC enforcement and, ultimately, a winding-up petition. If you cannot pay a VAT bill, the worst thing you can do is file the return late or not at all and go quiet. The better path is to file on time even if you cannot pay, then contact HMRC quickly to propose a Time to Pay arrangement, usually over up to twelve months, backed by realistic figures. Persistent VAT arrears alongside other tax debt is also a strong signal that the company may need formal rescue or an orderly closure. Acting early, while HMRC is still willing to talk, gives you far more room than waiting for a demand.

Speak to the right expert

Tell us briefly what is happening and we will arrange a free, confidential, no obligation introduction to the right expert for your situation, whether that is a turnaround adviser, a tax specialist or a licensed insolvency practitioner. The earlier you get advice, the more options you usually have.

Free, confidential and no obligation. We are an independent information service and introduce directors to the right vetted expert for their situation. This is general information, not regulated advice.