The answer is simple to say but very difficult to do – I can tell you this from experience. You really need to [private_basic]transfer some cash each week or month into a deposit account so it ring fences the money and it doesn’t “disappear” without trace.
However, not everyone has the discipline or more usually, the ability, to keep such large sums of money out of the business so what happens when the VAT Return has been filed and the direct debit for the VAT is bounced by the Bank due to lack of available funds?
The first thing is not to panic. In the olden days the failure to pay VAT on the due date would run a business into instant penalties and little option other than to take cash or a bank draft to the local VAT office as settlement. Failure to do this within a short time led to a visit from the bailiff and lots of trouble for all concerned.
In the current climate – despite ridiculous claims that the recession is over and everything is hunky dory by our government – I am pleased to report that HMRC are taking a realistic approach to businesses in trouble. They seem to appreciate the cash flow realities of small businesses and are taking a sensible approach to small businesses experiencing cash problems.
So, if you are having trouble paying your VAT, or are going to be come the 12th September when the next batch of direct debits will hit business bank accounts, talk to HMRC Debt Management people. Their phone number is 0845 302 0136 and their address is:-
When you speak to them you need to have worked out a plan of payments to offer. They will also expect you to keep other obligations such as PAYE up to date as well as make sure (and yes they know it is easily said!) you keep future VAT payments up to date.
This sort of arrangement cannot keep a business that is no longer viable afloat and shouldn’t be used in those cases. But it can give a vital breathing space for most small businesses that are solid, but having to give customers longer and longer to pay up. I have recently seen arrangements up to 6 months so HMRC are really trying to give as much help as they can.
Just don’t rush into any arrangement without looking long and hard at your business prospects though. Everyone would rather see a longer payment schedule that completes successfully than one that fails at the first payment and leaves HMRC little choice but send in the heavy mob to limit their losses when things go bad.
The moral then is not to panic if the bank bounces your VAT payment. Just talk to HMRC after chatting with your accountant and arrive at a workable solution. Don’t adopt the “Ostrich” approach. The direct debit will not be applied for again so you need to take action as soon as possible.
If you would like to talk through any worries or issues you face regarding your VAT payments, please do not hesitate to call me free on 0800 047 0731 immediately for a no obligation chat.