If your company has a turnover of more than £90,000 in any financial year then you must register for VAT. You will need to submit quarterly returns. Remember it is your responsibility to do this as a director, not your accountant. Yes, they can do it for you but ultimately compliance is your responsibility. If you haven’t filed a return then HMRC can make a reasonable assessment and chase you for it.
If your company can’t pay VAT, then the company is probably insolvent! You must act to do something about this.
If your business or company has not paid the VAT across to HM Revenue & Customs (HMRC), then there is a strong possibility HMRC will take action against the business. Basically, it’s taxpayers’ money and the tax collectors are there to collect it. There are no grey areas, just black and white. After all, HMRC has heard every excuse and will know your company is in financial difficulty, or the tax would have already been paid.
When companies face cashflow crises, management is struggling to cope and failure is imminent, often the major creditor pressure is from one source – HMRC.
HMRC are a preferential creditor, often ranking ahead of the bank. This may well mean that lenders who have issued loans, that you have personally guaranteed, get less recovery. This risks exposing you financially.
Banks worry about the pressure that HMRC can bring to bear; bailiffs, distraints, winding up petitions. These can precipitate the failure of the company and bankers worry about their ability to control this. What happens if their client gets a winding up petition from HMRC? Once a winding-up petition is issued it is advertised publicly, and in the worst case this can force the company into compulsory liquidation.
There are some options for dealing with tax arrears, but many people don’t know where to start.
It is worth calling HMRC’s Business Payment Support Service on 0300 200 3835. It’s open from 8am to 6pm Monday to Friday.
Options include:
Ask for time to pay the debt, or a TTP as we call it, if your company can’t pay VAT. HMRC provides a “Business Payment Support Service”. Using this service, all SMEs which have cashflow issues and good compliance should be able to get a Time to Pay arrangement with HMRC.
HMRC will want to know:
If you contact this service, you will need to explain why:
We can help arrange a time to pay with HMRC. Call us on 0800 9700539 to find out more.
Consider a company voluntary arrangement. This will take the pressure off straight away. This allows non tax debts to be partially written off. It also allows your company to cut costs, make redundancies and plan a turnaround. HMRC will accept a CVA if the proposal is fair, and the company is viable. See one of our case studies demonstrating this.
These very powerful techniques can help protect the business assets and sell them to a new company or third party. This will protect the company from aggressive legal action by HMRC.
If you file your VAT return late or do not pay then this is known as a default. Various penalties and surcharges are applied.
From 1 January 2023, new penalties for late VAT filing and payment apply. This applies to everyone who is to submit a VAT return for accounting periods on or from that date. Interest is also charged on overdue VAT from the first day of lateness until payment is made.
This system is now points based. Taxpayers will receive a point for each VAT return that is filed late. When the taxpayers’ total number of points reaches a threshold, a fixed £200 penalty will be applied. This penalty is to be applied for each and every additional late VAT return after reaching the threshold.
The frequency of which the taxpayer files their VAT returns will determine the threshold and the compliance period to reset points:
The changes have been made to encourage struggling taxpayers to reach out and engage with HMRC as soon as possible.
With both penalties in mind, if a Time to Pay Arrangement (TTP) is agreed upon with HMRC then this is treated the same way as a payment. The penalty clock will stop on the date of the TTP application. If the TTP terms are broken, full penalties will be charged and it will be as if the arrangement never existed.
Do not be tempted to borrow money from online lenders to pay a HMRC bill unless you are sure you can pay it back. These loans almost always have a personal guarantee requirement so you can become liable for the company’s debts!
If the company is insolvent, you could be personally liable for the debts if you continue to trade whilst doing nothing about the problems the company faces. Wrongful trading can be a real problem if ongoing tax arrears are building up and the company enters insolvent liquidation. Failure to pay VAT could result in a personal liability notice from HMRC.
If you KNOW the company is insolvent and continue to make the creditors’ position worse, you may become personally liable for those debts.
So, act carefully, keep notes of any decisions and always write down names of people you speak to at HMRC. Take advice from experts, and above all, act promptly as delay may just lead to more problems for you as directors.
It is estimated that over 200,000 companies are on some form of payment plan and many are failing to keep up with them. Non-payment of this tax is a failure to comply with the tax legislation and also signifies publicly (loud and clear to HMRC) that the company is insolvent. So, you need to act properly and responsibly by dealing with this serious threat to your company.
If your company needs urgent help – call us now for free on 0800 9700539 or email our advisors on help@ksagroup.co.uk. We can help with a time to pay deal or other turnaround options.
Don’t wait too long to get professional turnaround help. Call the experts on 0800 9700539
We are experts at negotiating with HMRC. HMRC are “sophisticated creditors” in that they know all the procedures and rules. You therefore need professional advice to make sure of the best outcome to save your business and stop the bank closing it down.
Written ByKeith Steven
Turnaround Director
Keith is the Turnaround Director of RMT KSA Insolvency Practitioners which has been established for 25 years. The company has undertaken more CVA led rescues than any other firm. Read our case studies to see how.
This case study is an excellent example of where we can rescue a company without having to use an insolvency mechanism. All parties want to avoid insolvency if possible for the best possible outcome.
