Step 3 Dealing with your priority debts

​VAT

  • As with income tax, HMRC can take action to get a summary warrant or action to get a decree for unpaid VAT. The types of enforcement action (diligence) they can use are also the same as with income tax.
  • You will usually have to pay any VAT arrears in full before the next VAT return is due. Late payment penalties will be added to the bill from the time it becomes overdue.
  • The VAT officer will usually look at your past record of VAT payments before deciding what payments to
    accept. So start paying what you can afford immediately, no matter how small the amount.
  • If the arrears are based on an estimated assessment, you must send in an accurate return, which could reduce the bill. Even if you cannot pay, you may avoid a penalty for not making a VAT return.
  • If HMRC cannot recover the money you owe by taking away your goods, they will usually apply for a bankruptcy order.
  • See our fact sheet:

    Tax information sheet.

  • HMRC can only make you bankrupt if you owe them £3,000 or more. It is important to let HMRC know if you stop trading, and you should apply to deregister for VAT if your turnover is less than the deregistration limit shown on our Tax information sheet . It is then often easier to come to an arrangement to pay off your VAT arrears by instalments. Contact us for advice.

National Insurance

There are four classes of National Insurance contributions (NICs).

  • Class 1 NICs are deducted from an employee’s wages and paid by the employer, along with income tax, under PAYE.
  • Class 2 NICs are paid at a flat weekly rate by self-employed people.
  • Class 3 NICs are voluntary contributions paid to help people qualify for retirement pension and certain benefits.
  • Class 4 NICs are paid by self-employed people on top of Class 2 NICs if earnings are above a certain threshold.

Class 1 and Class 4 NICs are collected by HMRC in the same way as income tax arrears. However, bailiff action can only take place at your business premises.

Class 2 NICs are collected by the National Insurance Contributions Office and, although they have the same powers as HMRC have for Class 1 and Class 4 NICs, their current policy seems to be to start proceedings through the sheriff court for a decree.