Tag Archives: VAT-late-payment-penalty

VAT Payment Problems – Q & As

By   12 November 2025
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If you can’t pay your VAT bill, please do not put your head in the sand, the problem will not go away.  Here are some answers to the most commonly asked VAT payment problems.

Q: I have received a demand notice for payment of VAT. Why?

A: HMRC have not received payment of the VAT liability that is described in the demand notice. You should therefore pay the outstanding debt without delay so as to avoid further recovery action. HMRC take prompt action to recover debts.

Q: I am not able to pay the debt immediately because of a temporary cash-flow problem. What should I do?

A: You should make urgent contact with your bank or your financial adviser to explore means of overcoming these temporary financial difficulties.

Q: I have consulted the bank/financial adviser, but they are unable to help. What else can I do?

A: Without further delay contact the Regional Debt Management Unit whose address appears on the demand notice. They may be able to help you by agreeing a brief period in which to pay the debt. They are usually helpful and will consider carefully all practical options for settlement. However, if these do not produce a solution or they do not receive a response to their request for payment, they may, like other creditors, take action to recover the money they are owed.

Q: What is a Late Payment Penalty?

A: These are a civil penalty to encourage businesses to submit their VAT returns and pay the tax due on time.

Q: When will a penalty be issued?

A: A business is in default if it sends in its VAT return and or the VAT due late – full details here. 

Q: How much is it?

A: First Penalty

A business will not incur a penalty if the outstanding tax is paid within the first 15 days after the due date. If VAT remains unpaid after Day 15, the business incurs the first penalty. This penalty is set at 2% of the tax outstanding after Day 15. If any of this tax is still unpaid after Day 30, the penalty increases to 4% of the tax outstanding after Day 30.

Second Penalty

If tax remains unpaid on Day 31, a business will begin to incur an additional penalty on the VAT that remains outstanding. It accrues on a daily basis, at a rate of 4% per annum on the outstanding amount. This additional penalty will stop accruing when the taxpayer pays the tax that is due.

Q: What sort of assessments are sent out?

A: An assessment may be issued if a VAT return is not submitted by the due date. The amount may be based on previous returns. If a business does not submit its returns time after time, the assessment value will increase. An officer may also issue an assessment after a visit, if they have found errors in the amount of tax declared on previous returns. Both types are included in the taxpayers’ debt and are collected in the normal way if they are not paid promptly.

Help 

There are a number of schemes available which may help cashflow or possibly reduce the amount of VAT you pay.

Cash Accounting – where you only pay VAT to HMRC when you have received payment from your customer.

Annual Accounting – where you make set monthly payments and make one return a year with an adjusting payment.

Flat Rate Scheme – where you pay a set percentage of your turnover rather than calculating output tax less input tax.

Bad Debt Relief – where you are able to reclaim VAT relief on your bad debts.

 

Further information

Further information on how to deal with a VAT debt here. 

Please contact us if VAT payments are proving a problem for your business.  Negotiation with HMRC is possible.

VAT Groups – updated guidance on penalties

By   5 November 2024
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VAT penalties for late submissions

HMRC has updated its Internal Guidance VGROUPS01530 on penalties for late submissions,

Penalties for late submissions are calculated on the basis of points.

For VAT groups the representative member has a single liability for these points covering the whole group. If the representative member changes, the existing liability is transferred to the new representative member. A new member joining the group will not affect the points total of the group, even if the member joining had points before. If a business leaves the group and registers for VAT separately they will start with zero points, even if the group that they left had a penalty point balance.

For divisions, each one is liable for its own separate points and penalties. Each division will have its own maximum points total.

What is a VAT Loan? – Business finance

By   8 August 2024
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Although, ideally, a business puts aside the VAT it collects from its customers (output tax charged) to pay its monthly, quarterly, or annual VAT bill, cashflow management can be difficult, especially for small or seasonal businesses with limited cash reserves. There are some things a business can do to mitigate the impact of VAT and one of these is a VAT loan.

Failure to pay VAT on time can lead to penalties and interest which could add to a business’ financial woes.

A VAT loan is a product which provides a short-term financing option to pay VAT on time. The loan covers the VAT amount due during each payment period, which allows a business to spread the VAT cost over a longer time instead of paying it up front in one hit.

Furthermore, there is no need to use up an existing bank facility. A VAT Loan gives a business an alternate financial option to utilise.

How it works

A business can apply for a VAT loan from a bank or other lender. It is usually deemed to be a secured business loan so assets must be put up as security. Once approved, the lender will pay it directly to HMRC. Repayment periods are typically between three months and a year.

The whole process does not usually take long as it is designed to be more streamlined than a standard loan. The money is usually paid to HMRC within days. Evidence of turnover and good credit history will be required, along with usual proof of ID and bank statements etc. Sometimes additional arrangement charges are made along with the interest.

Eligibility

A business must:

VAT bridging loans

There are generally two types of VAT loan: a standard VAT loan and VAT bridging loans. VAT bridging loans differ in that they are specifically a short-term option to assist a business bridge its cashflow gap between making a VAT payment, eg; for a significant purchase, usually property, and recovering this amount from HMRC as a repayment, which can take months (depending when the purchase was made in a VAT quarter and how quickly HMRC make the refund).

Finding a lender

 It is usually advisable to look for a lender who offers VAT loans specifically and compare interest rates, terms, fees etc.

A quick Google produces many VAT loan products to compare.

Downsides

As VAT loans are short term, the interest rates are often higher than other business loans. Additionally, the loan repayments and fees increase strains on a business’ financial commitments.

 

This is a brief overview on the mechanism and does not constitute financial advice. Businesses should seek their own financial counsel. Before signing any loan agreements, you should seek independent financial advice to better understand if a VAT loan you are considering is the right one for you.