Can You Pay VAT in Instalments?

If your business finds itself struggling with its cash flow reserves, you may be looking for alternative payment methods for your quarterly VAT bill. Can you pay VAT in instalments instead, for example?

The answer, is yes, well, maybe.

HMRC aren’t obligated to offer payment plans to every business. If you can’t pay your VAT bill, you can’t necessarily bank on HMRC helping your business out. That said, there is an instalment plan that HMRC can offer, that has helped many overcome difficult financial blips.

 

 

Can you pay VAT in instalments?

HMRC’s payment plan is called a Time to Pay arrangement, or (TTP). Although this can often make it easier for businesses to pay their VAT bills, HMRC aren’t always keen to set them up for certain companies.

If HMRC doubt your company’s long-term viability, they’re unlikely to offer it any assistance with its VAT bills. HMRC’s VAT payment plans are meant to be implemented as an emergency measure. If they think that you’re likely to need one year after year, they may well reject your application.

If your business has found its reserves stretched thinly due to something out of your control or is showing signs that this current lean spell is merely a blip, then you stand a much better chance of being able to pay VAT in instalments. Perhaps your premises has recently flooded, or an expensive piece of machinery has broken. HMRC may be able to see that your accounts are usually healthy, but bad luck has seen your quarterly VAT bill synchronise with an economically challenging time for your business.

 

 

Can you pay HMRC VAT online?

It is possible to set up a VAT payment plan online, though your business will need to meet several criteria.

Your business must owe £50k or less, have a debt for an accounting period that started in 2023 or later, and plan to pay off the debt within the next 12 months. In addition, all of your company’s tax returns must have been filed, and you can’t already have any other debts or payment plans in place with HMRC.

Any businesses that are in the Cash Accounting Scheme, Annual Accounting Scheme, or simply make payments on account, will not be eligible to set up a VAT payment plan online.

Before you apply, make sure that you have your unique tax reference number at hand, as well as the details of any payments you may have missed already.

 

Speak to a specialist

If you suspect that HMRC may have misgivings about your ability to pay, and possibly decline your application, it’s worth talking to a specialist service such as Forbes Burton’s. We have extensive working relationships with HMRC, and know exactly what their advisors are looking for when they’re considering applications. With expert help, you stand a much better chance of securing a manageable payment plan for your business.

 

Avoid late HMRC payment charges

To avoid any late payment charges or penalties, you or a specialist firm working on your behalf, should contact HMRC as soon as you anticipate any financial troubles.

HMRC are sometimes able to offer the means to pay as much as you can reasonably afford on your VAT bill. This is under their Time to Pay arrangement, which means you can negotiate within certain limits to meet the costs incurred.

This Time to Pay agreement also means you are being charged 6% interest on the amount owed. This can lead to payments taking much longer to complete overall. When negotiating a longer payment term, consider the effects it will have on your day-to-day business and any impact it might have on your company’s cash flow.

Remember, missing VAT payments is an insolvency trigger. By arranging a Time to Pay agreement, you’re effectively creating the last chance to make things right. Any further incursions may result in insolvency proceedings commencing against your company.

 

Can you pay VAT in instalments? Questions HMRC may ask

When discussing your situation with HMRC, the Business Payments Unit will want to know:

• Why the company is unable to pay its VAT due in full and on time
• Whether your company filed its VAT return on time
• What you have done to try and meet the level of debt incurred
• How much you can pay right away
• How long you think you will need to pay the remaining balance
• In some cases, they may seek out your payment history and how long you might realistically need to pay the bill. HMRC will assess your ability to make the future payments and decide whether your business is eligible for a VAT payment plan.

 

How much can you afford to pay in instalments?

When it comes to negotiating, it’s essential you are realistic about how much of your VAT bill you will be able to repay each month.

What is important to underline here is that you should stick to your plan to the letter. Any divergence might mean you start to incur late payments again and be in an even worse position overall. It will also be considerably more difficult to arrange another VAT payment plan if you have already defaulted previously.

However, you also need to offer to repay an amount HMRC considers to be reasonable. In some cases, HMRC will deem your offer unacceptable. Thinking ahead and making comparisons to your amount owed and what is expected of you is wise.

The overall advice here is to not enter any sort of debt with HMRC in the first place. Careful planning and a more dynamic approach to managing business debt or issues with cash flow can really make a difference.

Simply looking forward with business plans, cash flow forecasts and knowing where your market is about to head can save huge headaches down the line.

 

Can you pay VAT in instalments via VAT annual accounting?

Yes. Quarterly VAT bills can reach quite a size. Sometimes, these bills can even become too difficult for a company’s working capital to cover. With VAT Annual Accounting, however, business owners have the option to pay monthly instead.

This method of paying is designed for businesses that haven’t found themselves in debt to HMRC yet by missing payments. As such, it works a little differently to Time to Pay arrangements.

The main difference is that instead of having to submit tax returns for each quarter, you only submit one for the entire year, each year. This return figure is based on your previous 12 months’ trading.

 

Can new businesses apply for VAT Annual Accounting?

Yes. Despite a new company’s inability to provide figures for 12 months’ worth of trading, a VAT Annual Accounting plan can be set up with an estimate instead. This estimate will be based upon your business plan.

 

Pros and cons of VAT Annual Accounting

The most obvious benefit to VAT annual accounting is the ability to spread VAT payments out monthly. Because your company’s VAT returns have already been calculated for the year, it makes it far easier to budget for. Each monthly payment should be the same, and known well in advance by you, making cash flow management much simpler.

Because the VAT return is worked out in advance of your monthly payments, there’s a possibility that it becomes less accurate as time goes on. This can potentially see you pay more tax than you actually need to. Luckily, if you do find that you’ve overpaid, you would still be entitled to a refund.

 

How is VAT Annual Accounting paid?

Monthly VAT Annual Accounting payments are due by the end of months 4-12. For each payment, 10% of your estimated VAT bill will be needed.

At some point between the start of the 11th month, and the end of the 12th month, directors will need to make an additional balancing payment (or final payment). The amount of this payment is calculated by finding the difference between the total of all of the monthly payments, and your new VAT return. If this is similar to last year’s VAT return figure which the monthly payments were based on, then you should have little to pay, and may even be entitled to a small refund.

 

Can anybody apply for VAT Annual Accounting?

No. eligible businesses must have an annual taxable turnover of less than £1,350,000. Any businesses that are currently insolvent, behind on their VAT returns or payments, or have exited the Annual Accounting scheme within the last 12 months are also unable to joint the scheme.

Companies that surpass a taxable turnover of £1,350,000 while still paying their monthly instalments, are allowed to carry on with the scheme until they hit a year-end figure of £1,600,000 instead.

 

What happens if you don’t pay VAT?

It’s crucial to be proactive as soon as you think you may struggle to make a VAT payment. You’ll need to either contact HMRC directly, or recruit a business advisory service that specialises in HMRC matters to negotiate with them on your behalf.

Failure to contact HMRC and agree upon a payment plan can see them potentially –

• Make moves to close down your business
• Hire a debt collection agency to collect the money owed
• Begin court proceedings against your business

HMRC will always try to contact you before things get to this stage though. They’ll send letters, text messages, and even visit your premises to try to notify you of missed payments.

 

Not sure what to do?

If your company is struggling with unmanageable HMRC debts, poor cash flow, or an uncertain future, you are not alone.

We speak to company directors struggling with the same issues as you every single day. Our experience in this field means that we’re able to give you the help and guidance you need.

Call our team for free, no-obligation advice today on 0800 975 0380 or book a free consultation