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.