Last updated 22 October 2026. General information only — not legal, tax or financial advice.
1. Keep filing your VAT returns on time
Not being able to pay is no reason to miss the return. Filing on time keeps your company's record accurate and avoids late-submission penalties on top of what is owed. HMRC treats late filing and late payment separately.
2. Contact HMRC early
GOV.UK says that if you cannot pay your tax bill on time you should contact HMRC as soon as possible. Interest is normally charged on late VAT, and late payment penalties may apply. Making contact before the deadline, or soon after, usually gives you more options than waiting for HMRC to chase.
3. Understand HMRC payment plans (Time to Pay)
HMRC may agree that a business pays what it owes in instalments. Some businesses can set up a VAT payment plan online within limits and conditions published on GOV.UK. Others need to call HMRC. HMRC will want to understand:
- why the company cannot pay in full now;
- what it can realistically afford each month;
- how it will keep up with future VAT as it falls due.
Only HMRC decides whether to agree a plan and on what terms. A realistic proposal backed by a clear picture of cash flow tends to be taken more seriously than an optimistic one.
4. Look at the cash flow behind the arrears
VAT arrears are often a symptom: slow-paying customers, falling margins or VAT money used to fund day-to-day trading. A short cash-flow forecast helps you see whether instalments are genuinely affordable and whether the problem is temporary.
5. Warning signs to take seriously
- other taxes (PAYE or Corporation Tax) are also falling behind;
- suppliers or lenders are pressing for payment at the same time;
- an earlier HMRC arrangement has already been missed;
- the company cannot pay its debts as they fall due.
If the company may be insolvent, directors' responsibilities can change, and the interests of creditors become more important. This is the point to get advice from a Licensed Insolvency Practitioner. Cooper Murphy can introduce you to an independent practitioner. You are free to choose any practitioner.
How Cooper Murphy can help
As a consultancy, we help directors understand where the company stands and prepare a realistic Time to Pay proposal for HMRC. Where appropriate, we can introduce you to independent professionals. We cannot guarantee any outcome, negotiate on HMRC's behalf or stop enforcement action.