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What Happens If VAT Is Not Paid To HMRC On Time?

This guide is about what happens if VAT is not paid to HMRC on time.

In this article you’ll learn about:

  • HMRC Vat compliance expectations
  • Assumption of insolvency if VAT taxes go unpaid
  • Penalties for non-payment

Let’s get started.

What Happens If VAT Is Not Paid To HMRC on Time?

Overview Of Not Paying VAT On Time To HMRC

Not paying VAT to HMRC as well as other taxes such as Corporation Tax or PAYE is a serious matter and can threaten a company’s survival.

Taxes such as VAT and PAYE where the taxpayer is in effect a collector for HMRC typically means that a company can be subject to closer observation by HMRC if there are failures of compliance.

As with all tax matters compliance is neither trivial nor optional. Compliance in recent times has changed due to Making Tax Digital. This means that most compliance such as filing tax returns is done online. VAT returns are filed online with payments made electronically seven days after the end of the month following the end of the period for filing of the return. If you are filing returns quarterly such as at 31 March, 30 June, 30 September and 31 December then due dates for payment would be 7 May, 7 August, 7 November and 7 February respectively,

HMRC Assuming Of Company’s Insolvency

Failure to submit a return or not make a VAT payment by the due dates is a position that HMRC not only would not permit but cannot permit such is its due to the taxpaying community as a whole.

The due dates for payment result from legislation and if there are not adhered to then simply HMRC will take the view that the company that is not paying its VAT when it falls due is doing so because of solvency matters. To prevent potentially further losses to the Crown HMRC will then likely take steps to attempt to work with the company to understand the reasons for the arrears but if there is no improvement in the situation it will hand the case over to its enforcement division that will in the first instance issue HMRC chasing letters. If that still does not solve the problem from HMRC’s point of view then the matter will likely result in moves towards issuing a Winding Up Petition for the company to be placed into Compulsory Liquidation.

HMRC Penalties If VAT Is Not Paid

If a company does not pay its VAT to HMRC on time and the matter is not quickly regularised then HMRC will issue a surcharge notice and thereafter for the continuation of such compliance failure then further penalties would result.

It is absolutely crucial that you do not let this happen by talking and engaging properly with HMRC every step of the way so that they can see you are not deliberately avoiding or ignoring them. Compliance failures involving the submission of late tax returns are avoidable if you keep your company records adequately maintained as indeed it is a mandatory obligation under company law in light of Section 386 of the Companies Act 2006.

If however such compliance failure arises the effect of HMRC tax penalties will add to the burden on the business at a point when it potentially needs to avoid added cash flow pressures.

HMRC Policies Are Not Flexible On Compliance

HMRC operates policies for the business community as a whole. It cannot make one rule for one company and one rule for another. Compliance in filing VAT tax returns has to be achieved by all companies. As a result, HMRC will not be tolerant where basic compliance failures arise.

HMRC relies on the business community being compliant as otherwise potential anarchy would arise and the ability to collect VAT taxes would be prejudiced. However, whilst compliance is one thing HMRC does recognise that some businesses may encounter cash flow issues from time to time and has procedures such as Time To Pay Arrangements in place to potentially enable businesses to survive a rocky patch.

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Disclaimer: What Happens If VAT Is Not Paid To HMRC on Time?

This page What Happens If VAT Is Not Paid To HMRC on Time? is not legal advice and should not be relied upon as such. This article is provided for information purposes only. You can contact us on the specific facts of your case to obtain relevant advice via a Free Initial Consultation.

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