Managing Your Creditors

5. VAT

HMRC has a reputation for rarely tolerating unnecessary delays in the payments due to it. Paying VAT late, or making any mistakes in your VAT return, can be costly.

5.1 If you need time to pay, approach the VAT office with a clear payment plan.

• Unless you have clear evidence that the plan is reasonable and viable, it is unlikely to be accepted.
• The first answer you receive is almost invariably 'no'. But continued, reasoned correspondence may lead to a solution.
• You are far more likely to be granted a temporary 'arrangement to pay', such as paying off the debt monthly over three months, than a longer term arrangement.
• If you fail to stick to the agreement you can be surcharged, and are less likely to be granted other arrangements thereafter.

5.2 If you repeatedly fail to pay VAT on time the penalties escalate rapidly.

• Once you have been warned, the next step is a fixed surcharge of 2 per cent of the tax outstanding for that period. This increases to 5 per cent, 10 per cent, and 15 per cent for each subsequent default.
• Once a surcharge liability has been incurred, you need to pay your VAT on time for a full year to come out of the surcharge system (and revert to a pre-warning status).