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. 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. HMRC, gov.uk
- 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
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File on time, then talk to HMRC
Unpaid VAT is one of the most common triggers for HMRC enforcement and, ultimately, a winding-up petition. Late or missing returns make everything worse and add penalties, so file on time even if you cannot pay, then contact HMRC quickly to propose a Time to Pay arrangement backed by realistic figures. Use our Time to Pay affordability calculator to work out what you can sustain before you call. Acting early, while HMRC is still willing to talk, gives you far more room than waiting for a demand.
Persistent VAT arrears alongside other tax debt is also a strong signal that the company may need formal rescue or an orderly closure.
Related data
Our HMRC tax debt figures: The scale of tax debt owed to HMRC, VAT included, from the National Audit Office. Every page on our data hub names its official source.
Where to go from here
- Use the matching template: HMRC Time to Pay letter.
- If you decide to speak to a Licensed Insolvency Practitioner, choose your own: our practitioner directory lists every practitioner on the official Insolvency Service register, and how to choose an insolvency practitioner explains what to ask. Always confirm their entry on the official register before you instruct anyone.
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 for up to 12 months, and you keep filing and paying current VAT on time.