VAT problems, mistakes, adjustments, inspections and investigations

In this section:

What to do if you cannot pay the VAT due to HM Revenue & Customs
Dealing with VAT when goods are returned
Reclaiming VAT on bad debts on goods or services supplied by you
How to correct mistakes and errors, and make adjustments
VAT visits, investigations and prosecutions
Appeals against decisions made on your VAT
Penalties for mistakes and delays with your VAT

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What to do if you cannot pay the VAT due to HM Revenue & Customs

What to do if you cannot pay the VAT due to HM Revenue & Customs

This guide tells you what you should do if you are having problems paying VAT. It provides information on alternative VAT schemes that can change how much and when you pay, which may suit your business better. It tells you what happens if you file a late VAT return or do not pay your VAT due in full. It also includes advice on how to claim back VAT on bad debts.

On this page:

Help with VAT payment problems
Alternative ways to pay VAT
Claiming VAT back on bad debts
More useful links

Help with VAT payment problems

If you're registered for VAT, you need to make sure you submit your VAT return on time, along with any payment. If you don't, you could receive an automatic surcharge. So if you think you won't be able to pay your VAT by the due date, you should act immediately. There are several things you may be able to do to help yourself, and HM Revenue & Customs (HMRC) are also there to help you.

How you can help yourself

Make sure you have claimed any VAT back on bad debts, if you are entitled to. See the section below on claiming VAT back on bad debts. This could reduce the amount of VAT you need to pay.

How we can help you

If you still won't be able to make your payment it’s important that you contact HMRC right away. Who you should contact depends on your particular circumstances.

If this is the first time you’ve had a payment problem, and you’ve not contacted HMRC already, please contact the Business Payment Support Service (follow the link below to find out more).
If you’re already in contact with HMRC about a payment problem, or already have an arrangement with them, contact the office that you have been dealing with already.

Find out more about the Business Payment Support Service

Important actions you should take

Making contact with HMRC is the most important action you should take, but you should also do the following as a matter of urgency:

Submit your VAT return on time, even if you can't pay the VAT. If you don't, you could be liable to additional financial penalties.
Tell your bank and your financial advisor about the situation.
Any surcharge or penalty is calculated on the amount still outstanding at the due date, so even if you can't pay the full amount on time, pay as much as you can manage. This will reduce the penalty and could even stop it altogether.

To avoid getting into this situation again, you may find that one of the special VAT schemes makes it easier for you to meet your payments. See the section below on alternative ways to pay VAT.
Failing to pay your VAT on time is a very serious matter - it's not just a question of being charged interest. You could face financial penalties, court action or even bankruptcy.

Submitting late returns

If you submit a late VAT return, or you don't pay the VAT due in full, your business will be 'in default'. You may be liable for penalties and surcharges.
To avoid missing any deadlines, you can use an interactive tool to create a personal list of tax dates and receive email alerts reminding you of when forms and payments are due.

Find out how to register for email VAT reminders and alerts

Find out more about penalties and surcharges

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Alternative ways to pay VAT

If you are having problems paying VAT, you might want to take a look at schemes that offer alternative methods of payment. Some of these schemes change when you pay, and some change how much you pay.

Annual Accounting Scheme - this allows you to pay in monthly or quarterly instalments based on an estimate of your total VAT bill for the year.
Cash Accounting Scheme - this allows you to pay VAT only on the payments you receive from your customers, rather than the invoices you issue.
Flat Rate Scheme - this allows you to record the VAT-inclusive total of all your business supplies - including exempt supplies - and apply a flat rate percentage to it in each period. The result is the VAT you owe HMRC.

Claiming VAT back on bad debts

If you have supplied goods or services but your customer hasn't paid for them, you may be entitled to a VAT refund. To make a claim, you need to:

Have paid and accounted for VAT on the sale. This means that you cannot claim bad debt relief if you are on the Cash Accounting Scheme.
Wait at least six months after the payment was due.
Keep a copy of the VAT invoice and account details.

To make a claim, you need to state the amount of VAT you are claiming in Box 4 of your VAT return. If the debt is paid later on, then you have to repay the VAT portion of it to HMRC.

Read about reclaiming VAT on bad debts on goods or services supplied by you