The hidden dangers of late payment – VAT recovery limited after six months
Jaspal Dhillon, 27 April 2026
Jaspal Dhillon, 27 April 2026
Late payments are a scourge for all businesses, as there is little that can eat into your working capital as swiftly as someone not giving you the money that they owe.
However, if you are the one struggling to pay suppliers, then it will not just be their ire that you risk raising.
Your VAT bill might be increased if late payments persist for more than six months, so it is worth understanding how and when you need to manage your VAT recovery.
You will need to repay the input tax (the VAT previously reclaimed on purchases) to HMRC if you fail to pay your suppliers within six months of the due date.
This is something that can often be overlooked by businesses, resulting in VAT discrepancies that are often the target of HMRC investigations.
By understanding this rule, you will understand the importance of keeping track of when invoices are paid and how this differs from when you reclaim VAT on them.
Where you have reclaimed VAT before an invoice is paid, you should be aware that you may need to pay this back if that invoice is not paid on time.
In order to stay compliant with the rules, you must make a negative entry in the VAT allowable part of your VAT account on your VAT return covering the date the six-month period expires.
If you do go on to pay the supplier in full, it may then be possible to reclaim the VAT that you had to pay back.
As noted, the most effective way of avoiding this VAT trap is to keep a clear record of which invoices have actually been paid and which have not when reclaiming VAT.
This is not to say that you should never reclaim VAT on outstanding invoices, but you should be aware that you will need to repay it if you end up missing the payment deadline.
You need to be proactive in reviewing your invoices and creditors' reports to ensure that you are aware of any outstanding invoices that may be at risk of slipping over the deadline.
If your business is on the VAT cash accounting scheme, then you are likely exempt from these rules as you will only be claiming VAT when payment is made on goods rather than on unpaid invoices.
Our team can help you keep up with your VAT obligations.
We can help you identify the invoices that are at risk of increasing your exposure and help you to prioritise addressing them.
With proactive support, you can reduce the risk of unexpected VAT bills while maintaining positive relationships with your suppliers.
If you would like expert assistance with managing your VAT obligations, please get in touch with our VAT partner, Jas Dhillon (jaspaldhillon@lubbockfine.co.uk).
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