Written ByRobert Moore
Marketing Manager
Rob has over a decade of experience in web and general marketing. He has extensive knowledge of the Insolvency sector and has helped many worried directors with their questions.
Rob is now working with the Board at KSA Group Ltd to develop strategic marketing programmes to support the business plan and drive more company rescues.
VAT…Value Added Tax. This is an indirect business tax paid to HMRC. Ultimately, it is paid by the consumer as it is added to the price of the good or service they are purchasing from your company. You are in effect collecting the tax on behalf of HMRC and then you need to pay it over to them. You can of course claim back VAT that your company has paid for its own good’s and services.
When your company can not afford to pay over the VAT to HMRC, for whatever reason, then a debt accumulates. It is important to do all you can to avoid owing VAT
Not all companies need to pay VAT and neither do all goods and services attract it. As a director, it is your responsibility to be aware of whether your company is liable or not.
Legally, you are to register for VAT when your company has a turnover of over £85,000 across any consecutive 12-month period. If you fail to do this, failure to notify and late registration penalties will be issued.
Once registering, VAT must be charged on all of your goods and services sold, as well as claimed back on any business purchases. The buffer between the VAT charged on your goods and services and the VAT you have paid, is how much you must pay HMRC or reclaim.
Currently, the standard UK rate is 20% (for clothing, takeaways etc) though some goods have a small rate of 5% (i.e. home energy), if not being zero-rated (water, basic food, newspapers etc).
Note: ZERO RATED DOES NOT MEAN NO VAT. Zero rated sales should still be recorded and acknowledged on your company’s VAT return.
Note: Due to coronavirus, the Government had temporarily reduced VAT for certain supplies of hospitality, hotel and holiday accommodation and admissions to certain attractions, to 12.5 %. This has now come to an end.
This is of course, something you wish to avoid. However, if you do become subject to a penalty, there are different categories for your fine to fall in to. Ultimately, it depends on the amount of times you have fallen behind on your payments and the company turnover. See the table below:
| Number of Late Payments | Penalty for companies with turnover up to £150,000 | Penalty of companies with turnover in excess of £150,000 |
| One | None | None |
| Two | None | 2% of unpaid VAT (or £400 whichever is highest) |
| Three | 2% of unpaid VAT (or £400 whichever is highest) | 5% of unpaid VAT (or £400 whichever is highest) |
| Four | 5% of unpaid VAT (or £400 whichever is highest) | 10% of unpaid VAT |
| Five | 10% of unpaid VAT | 15% of unpaid VAT |
| Six+ | 15% of unpaid VAT | 15% of unpaid VAT |
A daily interest rate of 2.75% will be charged on to the balance of any late payment, so be warned. Until you can pay off the debt, this will continue being charged.
If you are in this position and your company has hefty VAT debts, it really does paint a poor financial image. Take advice from licensed insolvency practitioners, like ourselves, who can help explain the options you have and talk you through the best way forward.
Other options exist…it doesn’t automatically mean closure!
This is a short-term solution (typically one year) to give you some time to pay off your tax debt. Remember, HMRC just want to receive their payment at the end of the day, so they are not too concerned if this means arranging a payment plan to get their tax debt paid. Be reasonable with them and do not be afraid to ask or negotiate. Do bear in mind that this will require the outstanding HMRC payments as well as current and future tax payments, being paid.
VAT charges are hidden within the price of a good or service charged to a customer. The company then usually use the money collected to help with daily running costs of the business. When this happens, little to no money is left for HMRC.
Seek for alternative options to improve your cash flow. Some ideas include:
Contact us today for more helpful advice.
What is a CVA? | Company Voluntary Arrangements Explained
A CVA or Company Voluntary Arrangement is a legally binding agreement with your company's creditors which allows a proportion of its debts to be paid back over time. 75% of the creditors, by value, who voted need to support the proposal.
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Pre Pack Administration Process and Procedures
Pre pack administration is an insolvency procedure which allows an insolvent company to sell its assets to a buyer before appointing administrators. It’s a powerful, legal way of selling the business on to a trade buyer or third party.
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Worried Director What Will Happen To Me After Liquidation?
"A man in the pub said I cannot be a director of any other company if I liquidate my company. Is this true?"Actually, this statement is entirely false! Misconceptions like this frequently arise from individuals with limited understanding of the subject matter. Such misinformation can cause undue anxiety for directors considering liquidation, fearing it might personally affect them. Guess what? Listening to bar room experts, inexperienced accountants, or no insolvency specialist lawyers can stop decisions being made, this failure to make a decision is really what could land you in trouble. So how will liquidation affect me and how long does it take? Having a limited liability company means that the directors have little risk (or limited liability) if the company fails, as long as they have acted properly and acted in time. What is more, if as a director, you have been compliant and on the payroll for many years, you can actually claim redundancy from the government like any other employee. But, and it is a big but, if you fail to act in time, fail to act reasonably, fail to keep books and records, continue taking credit KNOWING that the company cannot possibly repay it, then you ARE at risk of personal financial loss or worse such as losing your house. So, act now and get help for your company and more importantly start reducing your own risks.Voluntary liquidation is the quickest most efficient way to deal with an insolvent company that has no future. As a director of an insolvent company, you are at risk if you do not act. This risk RISES the longer you don't act to put the company into liquidation.If you fail to act and the company is wound up by the creditors (compulsory liquidation) then the Official Receiver (OR) will be appointed to liquidate the business and he or she will investigate the activity of the directors and the business over the last 2-3 years. This is known as a conduct report on each director. If the OR can prove there was wrongful trading where, for instance, you have taken credit from a supplier or took deposits from customers when you knew that it was highly unlikely that you could pay them back, then you could be made personally liable.This is known as the "lifting of the veil of incorporation" that protects directors under limited liability. If this happens then you could made liable for PAYE, VAT and creditors monies from the time that you should have known the company had no reasonable prospect of surviving the problems it faced.Additionally, the directors may face disqualification proceedings under the Company Directors Disqualification Act 1986 for up to 15 years, they can be fined and may face the loss of personal assets like your home, or even personal bankruptcy.Look, if you as directors have acted naively you may not know that you have broken these laws, but now you do know, it is vital to ensure that you protect yourself as a director by acting quickly to cease trading and put the company into voluntary liquidation; or consider a company voluntary arrangement if the company is VIABLE if the problems are solved. What is Creditors Voluntary Liquidation and what does it mean for me? In short, liquidation usually means, the company's trading stops and it's assets are turned into cash or "liquidated".All other possible liabilities, like employment liabilities, landlord's rent or payments to lease companies are stopped. It really is the end of the company, but the "business" may survive if a phoenix is organised. Liquidation is a powerful way to END creditor pressure and let you get on with your life. What if I have signed personal guarantees? If you have signed personal guarantees or indemnities to lenders, then the liquidation could lead to them being called in if the bank cannot get its money back from the company. There is little that can be done about that, but you should not delay decisions on liquidation to try and prevent a PG being called in: just think what ALL of the company's debts landing on your shoulders would do. Also it should be noted that HMRC now rank ahead of floating charge holders in any liquidation since December 2020. Consequently, this may well mean that lenders that you have personally guaranteed will get less recovery hence exposing you more.All banks will agree a deal to repay the PG over time - provided you work with the bank to reduce their exposure.One great piece of FREE advice - always make sure that ALL tax returns, VAT returns and annual returns have been completed and sent in and that other "compliance" issues are dealt with wherever possible. These are important processes and will help protect you as individual directors. It shows that you have been acting properly. I have heard about directors being able to claim redundancy in liquidation If you have been employed by the company and made payments via PAYE then you will be able to claim redundancy from the government and this is in fact a very simple process (20 minutes to fill out a form and we can help with that) so there is no need really to employ a third party to make a claim. This process has been open to fraud so the HMRC are cracking down on operators that claim to be able to get money back when there is not enough "paperwork". It isn't worth the risk. If it sounds too good to be true then it probably is!You need to learn more about the options. This is clearly a general guide so, if you have any worries at all, please, just call us and we will talk you through the situation free and with expert guidance for your situation. Call one of our advisors or if you prefer, call our IPs (insolvency practitioners) now:Just one CALL will help relieve the stress and get you out of the mess.Why not call 08009700539 or 020 7887 2667 now?We could help you start the liquidation process today.(8.15am till 5.00pm; Out of hours call on 07833 240747, Wayne Harrison (IP) or Eric Walls (IP) on 07787 278527)Finally, please remember this: NO BUSINESS is worth losing your health, relationships, marriages or your children over. Act properly, take advice, get the problem sorted and then get on with your life. In a little while the stress will go and you can focus on other things that are more important.Want more information on liquidation? Get our new free 2023 Experts Complete Guide to Creditors Voluntary Liquidation that covers Bounce Back LoansWe are experts in liquidation, voluntary liquidation, administration, pre-pack administration, business rescue, corporate rescue and company rescue, we can help solve your problems but only if you talk to us. Call 0800 9700539 for help.or email us your worries at help@ksagroup.co.uk
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Notice of Intention To Appoint Administrators
A notice of intention to appoint administrators is when the company files a document to the court to outline that it intends to go into administration if a solution cannot be found to its immediate financial problems. It can be used as part of the pre-pack administration process as well as used to restructure a failing business to avoid its liquidation.
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What Is A Winding Up Petition By HMRC or Other Creditor
A winding up petition is a legal notice put forward to the court by a creditor. The creditor petitions to the court if they are owed more than £750 and it has not been paid for more than 21 days. The application, in effect, asks the court to liquidate the company as they believe the company is insolvent.
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