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.
I can't pay my company's VAT - what are my options?
If your company can't pay its VAT bill, you have more options than many directors realise - but they narrow quickly the longer the arrears are left, so the worst strategy is silence.
In this guide you'll learn how HMRC responds to VAT arrears, how Time to Pay arrangements work, what the penalties are, and what to consider if the debt has become unmanageable.
VAT arrears are one of the most common early signs of deeper cash flow trouble, so it's a good idea to look at the whole position - not just this quarter's bill - when deciding what to do.
What happens if I miss a VAT payment?
Interest accrues on the unpaid amount from the due date, and late payment penalties escalate the longer the debt remains - starting after 15 days and stepping up after 30.
Beyond penalties, persistent arrears move your company up HMRC's enforcement path: warning letters, debt collection, enforcement officers, security demands in some cases, and ultimately a winding up petition - HMRC is the UK's most frequent petitioner.
None of that happens overnight, which is precisely why the early window matters.
Should I contact HMRC if I can't pay?
Yes - and before the payment date if possible.
HMRC's practical stance is consistently more constructive with companies that engage early than with those that go quiet, and a realistic proposal made proactively is the foundation of a Time to Pay arrangement.
Continuing to file returns on time, even when you can't pay, also matters - non-filing compounds penalties and signals disorder.
Can I get a Time to Pay arrangement for VAT?
Often, yes - HMRC agrees instalment arrangements for viable companies with a temporary problem, typically spreading arrears over six to twelve months alongside keeping current liabilities up to date.
Our full Time to Pay guide covers how to prepare a proposal and what HMRC looks for.
The honest caveat: a TTP only works if the business can genuinely afford both the instalments and its ongoing bills - an arrangement that fails mid-term leaves you in a worse negotiating position than before.
What if the VAT debt is only part of the problem?
VAT arrears rarely travel alone - they typically sit alongside PAYE arrears, stretched suppliers, and sometimes a Bounce Back Loan.
At that point the question changes from "how do I pay this bill" to "is this business viable" - and the answer determines the route: restructuring and negotiation if it is, or an orderly process such as a Creditors' Voluntary Liquidation if it isn't.
Our guide to your options when a company is insolvent walks through that decision.
Am I personally liable for the company's VAT?
Generally no - VAT is a company debt, and directors are not automatically liable.
The exceptions are deliberate: security demands where HMRC suspects risk, and personal liability routes aimed at fraud or repeated phoenixism - not at ordinary directors of a struggling company who engage honestly.
What directors should avoid is using VAT money as informal working capital for months while paying other creditors - a pattern that features badly in any later review of conduct.
What should I do this week?
Three practical steps: file any outstanding returns, work out the full creditor position rather than just the VAT figure, and take advice before speaking to HMRC if the arrears are substantial - a proposal pitched right first time succeeds far more often than a renegotiation.
Call our licensed insolvency practitioners in Manchester on 0333 023 5090 - a confidential conversation directly with an ICAEW-licensed IP about your VAT arrears and the realistic options.
InsolvencySupport.co.uk is operated by Xeinadin Corporate Recovery Limited (company no. 11415156), 100 Barbirolli Square, Manchester M2 3BD. Our insolvency practitioners are licensed and regulated by the ICAEW.
This article is intended for general information purposes only and does not constitute financial, legal, tax, or professional advice. Always take advice from a licensed insolvency practitioner about your specific position.
Reviewed by Alan Fallows, Licensed Insolvency Practitioner, ICAEW.