For companies not paying their HMRC VAT payments on time or only making part payments, this is a serious indicator of significant problems with company cash flow. It is mandatory for all businesses to file their VAT return online and make payments within the due dates. The deadline for submitting your business tax return is one calendar month, and seven days after the accounting period. You do have the option to enter your online account and receive reminders for the due date of your VAT return. However, if you do miss the payment date, there could be severe consequences.
HMRC does allow some forgiveness for a company if it is their first late payment within 12 months, but you will be sent a surcharge liability notice (which we will explain in further detail below). If you miss another deadline, you will incur further penalties for your business. It’s important to note that HMRC VAT penalties are not only due for late filing, but can also be imposed on companies paying the wrong amount, or in cases where false declarations are made.
Every business needs to ensure their VAT payments are dealt with correctly and on the date they are due. The annual VAT registration limit is £85,000, and if your turnover exceeds the total, you need to apply for VAT registration within 30 days of this occurance. If you do not, there are VAT penalties for late registration. If you suffer VAT penalties for late registration, you will have a percentage penalty applied to your business, unless you can provide a valid reason for the delay. The first point to note is that this applies to any 12 month period and not just relating to your company tax year. You cannot wait until a convenient time to register after you have hit the threshold as you will be liable for late registration penalties.
Smaller businesses will be treated more lenient to that of larger companies. If your business happens to turnover less than £150,000 these are the following VAT surcharges you will face:
If your business has a turnover of more than £150,000, there are more pressing consequences for your company.
A default surcharge notice is issued for late payments. It is one of the common HMRC VAT penalties, and refers to a percentage of the amount of tax is owed. The charts above are what your business will be charged.
The default surcharge will last 12 months from your late submission or payment. However, if you incur further late payments, those 12 months will be extended. If you do not have any more late payments in the 12 months, you will leave the default surcharge regime.
Your company can apply for a VAT surcharge appeal, but you must demonstrate your attempts to pay on time and provide valid reasons for not doing so. If your VAT surcharge appeal is successful, the penalty will be cancelled. In recent years, most VAT surcharge appeals are ruled in favour of HMRC.
If your company does not pay their VAT payments on time, HMRC will begin to think your company is facing serious cash flow issues and heading to insolvency. If they believe your company is insolvent and continuing to trade, HMRC will act quickly against your company. You may be able to enter into a time to pay arrangement, which will mean any penalties may be waived as long as you stick to the agreement.
Failing this if you are struggling to pay HMRC VAT and associated penalties, you need to seek advice as soon as possible. Our business rescue experts can provide business funding advice and guide companies facing insolvency.
A fixed charge is attached to an identifiable asset at creation. Assets can include land, property, machinery, copyright, trademark and much more. The business does not typically sell these fixed assets, and the fixed charge is applied to protect the repayment of the company debt. The simplest way to put it into perspective is to think of a mortgage; you cannot sell your house without your lender’s permission, as you have not yet paid the debt off and own the house. With a fixed charge, the lender has full control of the company asset. Therefore, should any corporation want to sell that particular asset, they must have the lender’s approval to do so or pay off the debt.
As previously mentioned, fixed charges are over substantial and physical assets. Examples include:
It’s important to note that a fixed charge repayment ranks before that of a floating charge repayment in company insolvency. You can find out more about the legislation of business insolvency with our What is Insolvency Law article.
The term floating charge is apt, as a floating charge ‘floats’ by its very nature. While a fixed charge is attached to an asset that can be easily identified, a floating charge is a charge that floats above ever-changing assets.
The floating charge, or a security interest over a fund of changing company assets, allows for more freedom for a business, than the lender. While a fixed charge protects the lender, the floating charge gives more scope for the company to sell, transfer or dispose of their assets, without seeking approval from the bank. From the lender’s point of view, it leaves them exposed - particularly as floating charge repayments typically recoup less than the fixed charge. However, it’s impossible to attach a fixed charge on all company assets, hence the use of floating charge assets.
A floating charge differs from a fixed charge, as it refers to interest applied to company assets that are not constant, or changing. Examples of a floating charge feature:
Lenders may attempt to classify certain items on the above list as being subject to a fixed charge, however they will in reality only hold a floating charge over the specific company assets. Trade debtors are commonly miscategorised in this regard which can only be subjected to a fixed charge if they are factored and therefore in the control of the charge holder.
The definition of a debenture is a document that sets the terms of a loan and, thus, the types of charges - whether they are fixed or floating charges. This document sets out the amount borrowed, interest, when it needs to be repaid, charges securing the loan and insurance, etc. Debentures must be registered at companies house in order to create a valid floating charge and the lender will send that to be recorded once the company has agreed to the respective terms and conditions. A debenture provides security for the lender or bank, should the company fall into insolvency.
If a borrower defaults on repayments to the lender, they will have discretion to issue a demand for repayment against the floating charge. This allows the bank to enforce the charge. This was previously commonly dealt with by appointing an administrative receiver, however it is much more usual for an administrator to be appointed. If the company gives notices of a liquidation or otherwise this will also generally be a default on the floating charge.
The fixed and floating charge differences are significant as much as the ways they can be enforced are. If you need to speak to an expert about the charges, or fear your company could be heading for the early stages of insolvency, get in touch with one of our experts to discuss your options.