HMRC have now made it easier to set up a time to pay arrangement which you can do through your online VAT account.

There are, of course, provisos to setting up this arrangement online.

1. You do not have any other payment plans with HMRC

2. Your VAT debt is less than £20,000

3. You are able to pay off the debt within 6 months

4. You set up the arrangement within 28 days of the payment deadline

Some businesses may have had a difficult three months and this is a welcome solution to help them over that hurdle.

However if you have an ongoing struggle to pay your VAT bill then you will need to contact HMRC to arrange a longer payment plan.  They will ask for details of any other taxes you owe and will want you to pay the debts off as quickly as possible.  They may suggest you sell assets, obtain funding or make a personal loan to the business.

If you are really struggling to make ends meet then you need to look at whether your business is really financially viable.  You could:

  • reduce your sales until you are under the threshold as long as you plan to remain under the threshold
  • you could increase your sales but only if you can do this without increasing your expenses significantly which would make the gain in income worthless
  • you could cut out unnecessary expenses or reduce expenses by looking at alternative suppliers
  • you could take less money out of the business
  • you could cut down on staff
  • you could put the VAT element of every sale you make away into a savings account until you need to pay your VAT bill - that way you know that whatever you have in your business current account you can spend on business expenses and take as drawings

It is important to keep your finances up to date on a weekly basis if you are finding managing your cash flow difficult.  Knowing who owes you and who you owe (how much money is due to come in and how much is due to go out) will help you plan ahead for the quarterly VAT bills.

There are penalties for not submitting your VAT return and for not paying it so it is important to manage the situation so the penalties don't build up and add to the debt.