A guide, not advice. This explains how things generally work. A licensed insolvency practitioner will tell you what applies to your company or to you.
Why Unpaid VAT Matters
VAT is one of the most common debts to push a company into insolvency. Unlike ordinary trade creditors, HMRC has significant powers to recover unpaid tax - including the use of bailiffs, distraint, and, in some cases, personal liability for directors.
Crucially, unpaid VAT is also a strong indicator of insolvency. If your company cannot pay its VAT on time, you must treat this seriously and consider whether the company is, in fact, insolvent.
Your Options
1. Negotiate a Time to Pay Arrangement
HMRC's Time to Pay (TTP) facility allows businesses to spread tax payments over an agreed period. This can buy time while you address the underlying cash-flow problem. However, you must keep to the arrangement, and HMRC will want to see that the company can meet future liabilities as well.
2. Address the Underlying Cash-Flow Problem
If unpaid VAT is a symptom of a deeper trading problem, a TTP arrangement will only delay the inevitable. Consider whether the business is viable - if it is, restructuring or a Company Voluntary Arrangement may help; if it is not, an insolvent liquidation may be the responsible route.
3. Company Administration
If the business is fundamentally sound but crippled by a VAT arrears demand, administration can provide a breathing-space moratorium while a recovery plan is put in place.
4. Creditors' Voluntary Liquidation
Where the company is not viable, a CVL allows you to close the company in an orderly, responsible way, realising assets and distributing proceeds to creditors (including HMRC) in the correct order.
Director Responsibilities
Once you know, or should know, that the company cannot pay its debts, your duty shifts from the shareholders to the creditors. Continuing to trade and rack up further debts without a realistic plan can lead to a wrongful trading claim. Take advice early.
Speak to a Licensed IP
Our Manchester-based, ICAEW-licensed practitioners have extensive experience dealing with HMRC. We'll help you understand your options - whether that's a Time to Pay arrangement, restructuring, or formal insolvency - honestly and confidentially.