Arrears of VAT to HMRC is the worst thing – not just because it indicates that you have some kind of cash flow problem, but also because it may mean that your file is marked for closer scrutiny. It can also lead to paying significant penalties.
As soon as you have any concerns about either paying HMRC the VAT that you owe, or indications that would cause a problem, then we would stress the importance of talking to us, in order that we can advise you on the best strategy for dealing with your VAT arrears.
A Clear Strategy for solving your VAT Problems
We are more than happy to meet you, initially at no cost to you, to listen to your problems and concerns and then to provide you with a clear strategy for solving the problem.
Actions HMRC Take Against your VAT Arrears
In the event that you do not respond, when faced with HMRC VAT arrears, HMRC will take action against you. The four options are as follows:
Issue proceedings would be carried out against you in the local County Court. If HMRC is successful and obtainsjudgment against you, then they will look to enforce that reasonably quickly. This will lead to additional costs on top of the VAT that you owe.
Once judgment has been obtained, HMRC can then arrange for bailiffs to attend your premises to take control of your assets which is a dire situation and one which can easily be avoided by contacting us as soon as you have any correspondence from HMRC in respect of your VAT arrears.
HMRC are now using threat of a winding up petition to a greater extent than before. Again, this is the worst situation– should you do nothing about your VAT arrears and the threat of a petition for winding up, then HMRC will exercise the petition. Once the petition is advertised, your bank will freeze your account immediately, by law. You will encounter this when you try to make payments and find that nothing goes through because the bank has frozen the account.
HMRC VAT are now using a process which demands, that you put up a bond to cover VAT returns. In situations where you have consistently been late in paying your VAT or where you have considerable arrears of VAT, HMRC will insist that you either deposit an amount to cover what they assess (usually this will be two periods worth of VAT) or arrange for a bond to be lodged with them. The effect of both is pretty much the same – it places an extra burden on your already stretched financial crisis.
Advice for Avoiding HMRC VAT Problems
Keep VAT Collected in a different Bank Account
One of the problems that companies with cash flow difficulties face is paying VAT, especially where that company is on a three monthly return cycle. Whilst companies are entrusted by HMRC to collect VAT on its behalf, unless the VAT is placed into a different account, it can get “lost” in the account used to run the business.
Currently for every £1 of sale that your company makes, you need to charge 20 pence VAT, which you collect when your customer pays, and this needs to be paid over to HMRC every three months. You can offset your input tax, but most companies will make a net payment of VAT to HMRC.
Don’t Use VAT to Fund Your Company’s Daily Cash Flow
When you face financial difficulties, it can be tempting to use the VAT collected from customers to fund your company’s daily cash flow in the hope that you will be able to replace the VAT from other sales and make your quarterly VAT payment to HMRC on time. Regretfully, this can prove to be a poor decision, if you are unable to meet your VAT liability on time.
HMRC are now more focused on collecting outstanding VAT liabilities and in some cases where the company persistently fails to pay VAT to HMRC on time, HMRC will mostly look at initiating some kind of redress.
Always complete Your VAT Return On Time
Usually, when you are late in paying over VAT to HMRC, they will initially send you a reasonably polite reminder. If you fail to deal with this or indeed fail to pay over the VAT you owe to HMRC, then the situation will be escalated and you will be informed that court action may be taken.
Ask for Help if You are Unable to Pay the VAT You own on Time
If you have any doubts about your ability to pay HMRC the VAT that you owe on time, you should contact the HMRC VAT office dealing with your affairs and explain the situation to them. Whilst HMRC are much sharper now on collecting outstanding VAT, they are perhaps not as efficient as dealing with genuine issues that you may have in respect of your cash flow difficulties.
We would suggest that you contact us immediately if you have any concerns about being able to meet your HMRC VAT liability.
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