Can't Pay the VAT Bill? Options for Construction Companies
The short answer
File the VAT return on time, then ask HMRC for a Time to Pay plan within 15 days of the due date. That can mean no late payment penalty, though interest still runs.
- File on time even if you can't pay. Late filing adds penalty points and £200 penalties.
- Ask for Time to Pay by day 15. That can mean no late payment penalty. Break the plan and the penalties come back.
- Interest runs from day 1 at Bank of England base rate plus 4%, even during a plan.
- Move VAT out the day a deposit lands. VAT is due on a deposit when you receive it or invoice it, whichever is first.
Your construction company can't pay the VAT bill. The return is ready, the number is bigger than you expected, and the money isn't in the account. Usually it was spent on materials, wages or finishing the last job.
You're not the first builder in this spot, and HMRC has a standard route for it. What matters is acting before the deadline, not after. If you want a second pair of eyes on your cash before you call HMRC, book a free strategy call.
This is general information from a contractor's experience, not financial or tax advice. For your situation, speak to a construction-specialist accountant.
Can't pay the VAT bill? The next 24 hours
- File the VAT return on time anyway. Late filing earns penalty points, and £200 penalties once you hit the threshold (4 points for quarterly returns). It's separate from paying late.
- Work out what you can pay now. Even a part-payment reduces the penalty and interest base.
- Work out what you can pay each month without missing wages or suppliers. Use our 7-day cash plan list.
- Check if you can set up a plan online. HMRC's online service checks if you're eligible. If not, call the VAT payment helpline on 0300 200 3831, weekdays 8am to 6pm.
What it costs if you pay late
Since 2023, VAT has a clear timetable. The sooner you pay, or agree a plan, the less you pay.
| Days overdue | Interest | Late payment penalty |
|---|---|---|
| 1–15 | Base rate + 4%, from day 1 | None |
| 16–30 | Base rate + 4% | 3% of what was owed at day 15 |
| 31+ | Base rate + 4% | 3% at day 15 + 3% at day 30, plus a second penalty of 10% a year, charged daily |
On a £15,000 bill paid 51 days late, HMRC's own example gives a first penalty of £900, plus the daily second penalty and interest.
Ask for Time to Pay on or before day 15 to avoid the first penalty. If you agree a plan and then break it, HMRC can charge the penalties as if the plan never existed.
Going quiet. Interest and penalties grow every day. An ignored debt goes to collection: letters, debt collection agencies, and in the end goods or money taken from your bank account.
Problems like this usually trace back to cash and contracts. The free 4-minute Construction Business Scorecard shows your weakest area first. Want someone to run valuations, variations and final accounts for you? See our commercial management service.
Still can't see how to pay the VAT bill?
Book a free call with our team. We'll look at your cash, what you can offer HMRC and how to stop it happening again.
The call to HMRC: what to say
HMRC wants to know three things: why you can't pay, what you can pay, and that the plan is realistic. Have this in front of you:
- VAT registration number and the period you owe for
- Business bank account you can set a Direct Debit on
- The company's monthly income and spending
- Other tax you owe (PAYE, CIS, Corporation Tax)
- Savings or assets HMRC might expect you to use
A short script you can adapt:
"I'm calling about our VAT for the quarter to 30 September, £18,600, due on 7 November. I'm calling before the deadline because we can't pay it in full. We're a construction company and two client payments slipped. I can pay £4,200 now and £2,400 a month for six months by Direct Debit. Our income is around £60,000 a month and fixed costs are around £52,000. All our returns are filed."
For company tax debts, HMRC will expect you to reduce the debt as much as you can first. It may ask directors to put in personal money. HMRC usually asks for around half of what's left each month after essential costs. To work out a monthly figure you can really keep to, book a free strategy call.
Why builders get caught by VAT
Three causes come up again and again in construction.
- VAT on deposits. VAT is due when you issue the invoice or receive the deposit, whichever comes first. Spend the whole deposit on materials and the VAT bill arrives with no money behind it.
- The reverse charge mix. Work for VAT- and CIS-registered contractors is usually under the domestic reverse charge, so they account for the VAT, not you. Work for homeowners isn't. Take on more private work in a quarter and your VAT bill jumps.
- Tax money in the operating account. If VAT, CIS and tax sit in the same account as wages, they get spent.
- Registering late. If you went over the VAT threshold by accident, the back-dated VAT lands as one bill.
The fix is one habit:
- Open a separate tax account and move the VAT out the day any payment lands.
- On a £12,000 deposit including 20% VAT, move £2,000 straight away (£12,000 ÷ 6).
- Check your rate: some building work is 5% or 0%. VAT Notice 708 sets out which.
- Ask your accountant about monthly returns if you mostly work under the reverse charge and reclaim VAT.
Get a construction-specialist accountant. One who understands CIS, retentions and reverse charge VAT will pay for themselves many times over.
Two side effects to watch
CIS gross payment status. Since April 2024, VAT counts in the gross status compliance test. A VAT payment more than 14 days late counts against you. Details in CIS gross payment status refused or removed. If a VAT or CIS problem has led to a letter, read our guide to an HMRC compliance check on a construction company.
Corporation Tax. For profits up to £1.5 million it's due 9 months and 1 day after the year end. If you can't pay, the same payment-plan route applies. The Corporation Tax payment helpline is 0300 200 3840.
If VAT is one of several debts you can't pay as they fall due, that's more than a tax problem. Read warning signs a construction company is going bust and get advice early.
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Before the next VAT quarter
- Return filed on time, even when you can't pay in full
- HMRC contacted before the deadline, plan agreed in writing
- Separate tax account opened, VAT moved out the day money lands
- Deposits invoiced with VAT set aside straight away
- Next VAT bill estimated 4 weeks before it's due
