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.
Stage 1: Initial company administration advice meeting
Stage 2: Review information & advice
Stage 3: Arranging valuations and marketing
Stage 4: Sale arrangements
Stage 5: Instruction and arranging the board meeting
Stage 6: Notice of intention to appoint an administrator
Stage 7: Appointment of an administrator
Stage 8: Statement of affairs
Stage 9: Post liquidation assistance & closure
The Administration Process
Timeline: Same day
Set up for either the same day for an ‘online meeting’, or a face to face meeting at a time and place to suit you. We’ll need at least one of the company’s directors there to explain the financial situation, after which we’ll give you an initial outline of various options available. We’ll leave you with a list of further information to get together.
Timeline: usually 1-14 days
We review all the information and advise you on all the available options (not just administration). We’ll provide you with a free quote and our terms of business for review. We talk about how to deal with any company assets (and whether you wish to purchase them), along with any other matters specific to your company, such as leases, personal guarantees or contracts.
Timeline: usually 7-14 days
At this stage, it becomes necessary to obtain a professional valuation of the business and put marketing in place to allow third parties to enter the bidding process. We acknowledge that this information will generally be highly sensitive and any marketing would be blind in order to preserve the value of the business. Any interested parties would be required to sign binding confidentiality agreements.
Any offers for the business will usually be dealt with by way of a sealed bids process. If you have submitted the highest bid to buy back the business then there are some additional steps you will need to take to set up the sale.
Timeline: usually 3-5 days
In order to a pre-packaged sale to take place to you as a connected party, the insolvency practitioner will recommend that you obtain an opinion from the Pre-pack Pool and prepare a viability statements for the new business for the next 12 months. The contents of these statements or in the alternative a note that you declined to take these actions will then be disclosed to creditors.
As a rule, we would always recommend taking this action as it lends credibility to the transaction. More information about from the pre-pack pool works can be found here.
Once both of these has been provided a sale agreement will be drawn up between the insolvency practitioner’s solicitor and your own solicitor ready to be completed once the company has been placed into administration.
Timeline: usually 1-3 days
If you would like to go ahead, and you have agreed to our terms, you formally instruct us to assist in placing the company into administration. We will arrange a board meeting to take place to arrange the requisite authorities to allow a designated board member to sign the administration documents. Note that where a pre-pack sale is taking place stages 5-7 will generally run parallel to stages 3 and 4.
Timeline: 5 business days
If the company has a qualifying floating charge holder registered at Companies House, advance notice of the administration must be given to them. The designated board member will need to visit their solicitor to provide a statutory declaration on the document. We will then arrange for this to be filed in court and served on any charge holder.
Once the notice period has expired or if the charge holder has consented the notice of appointment can be prepared and filed in court. Again we will prepare this document where the designated member will need to visit their solicitor for a further statutory declaration. We will again arrange for the document to be filed in court. Once this is done the company is officially in administration
Timeline: 11 business days
Once the company is in administration, the administrator will generally require you to provide a statement of affairs, detailing the company’s assets and liabilities. This is something you can often prepare with the assistance of your accountant. In order to assist the process, we can liaise directly with your accountant in relation to the requirements of the statement. Once it is completed you will need to sign off on its contents and we will then provide a copy to companies house and creditors. However, where there has been a pre-pack sale the administrator may advise that no statement of affairs needs to be delivered up.
Timeline: usually 9-12 month
We work with you to ensure that the company’s books and records are moved to the administrator’s office and that any remaining assets are properly realised. Each director is required to complete a questionnaire and once we are happy that there are no outstanding matters, we will either apply for the dissolution of the company or move into liquidation to allow for a distribution to unsecured creditors. Either way, the administration will come to an automatic end after a year.
Starting a small business is always going to be a risk. Yet without entrepreneurs starting up small businesses, we would not have any of the big brand names that we have today. As insolvency practitioners, we see a number of startups who have made the wrong decisions. The purpose of this article is to provide details of where we frequently see things go wrong so you can hope to avoid making the same mistakes.
Unfortunately one of the reasons we see for the failure of businesses on many occasions is directors failing to distinguish between company money and their own money. Too often we see day to day living expenses being drawn from the company account or simply large lumps of cash being taken out with no clear reason other than it was there.
As a director you are entitled to be remunerated by the company, however, this must be:
The nature of a company is that it holds limited liability, however, if funds are taken improperly from the company, not only can this cause solvency issues within the company, but will also allow an insolvency practitioner to lift the corporate veil and pursue you personally for these balances.
A lot of people are confused as to what overexpansion means. How can my business be too big? A successful business is not necessarily measured by how quickly the business grows. Ideally, your focus should be on steady organic growth. This is not something you can force by rapidly expanding your team and incurring numerous costs.
The best way to monitor growth is by measuring whether you are meeting customer deadlines and whether staff are able to manage their workload. As they are reaching their limit, but before they become a problem is the best time to expand. Otherwise, you are left with numerous excessive costs which can lead to the insolvency of your business if they are not dealt with quickly.
No one likes to be told this, but the hard truth is that businesses can fail due to your own management skills. To err is human, however it is important to know your own limitations. Also as a young manager new to business, you may want to be everyone's friend. Inversely you may be the type of manager who runs the office with an iron fist. Again neither of these extremes will promote productivity amongst your employees and you need to find the correct balance.
A good manager should have the following qualities:
An effective way to deal with this is to find some quiet time for self-reflection and honesty in writing out your strengths and weaknesses. Once you have done this you have three options to deal with your weaknesses:
This partially ties in with poor management but is significant enough of a problem to warrant further explanation. Unlike some of Del Boy’s “best” ideas, a business can’t be started up the next day after a chat in the Nag’s Head. There are multiple considerations which need to be taken into account and should be put into a fairly comprehensive business plan.
A good business plan should:
If you are seeking external funding for your business this will most likely be a requirement, which brings us on to our next topic.
When starting a new business it is important to ensure you have sufficient initial funding to reach the point where your business is making a profit. This is commonly known as knowing your burn rate. Underestimating the level of capital you need can mean your business has to close before it can even get started.
Careful planning is needed before you even get started on this and you should take the following basic steps to evaluate the level of capital required:
This figure should give you an idea of the amount of capital that will need to be introduced into the business in to give you time to bring your business into the black.
In the 21st century, consumers expect businesses to have a well-designed website and social media outreach. Not only is this an excellent low-cost marketing tool, but there is also a general distrust of businesses who have poorly designed websites or no internet presence at all.
In Q1 of 2017, it was confirmed that 91% of the UK population are Internet users to some degree according to the ONS. Yet still, 17% of SMEs have no internet presence whatsoever and 71% confirming they do not feel able to handle online clients. This alienates an enormous amount of the potential market no matter what type of business you run, particularly the millennial generation who for some reason don’t like talking to people directly.
As a bare minimum, you should have a website which:
Setting up your website as an e-commerce site is not necessarily a requirement, but if a bit of market research recommends it, then this could also be a huge asset to your business.
Whilst for many businesses, due to the creation of the internet, location will have no effect on them other than how easy it is for staff to nip out for a sandwich at lunchtime, there are still many industries which need to have the right level of footfall. To establish a good location for your business you need to consider:
The only other alternative is to have a product so good that customers are willing to travel for it. A good example of this is countryside pubs. Whilst they may be in the middle of nowhere, you will usually find that the food there is excellent to draw in customers.
If there is one thing you need to take the time to get right it is your relationship with HM Revenue & Customs. Due to increased pressure from the government, over the years they have become far stricter in how they deal with businesses. While almost all businesses will need to be registered for VAT, PAYE/NI and corporation tax there are also a number of indirect taxes you may need to manage and pay which as less well known:
These taxes are all industry specific and you should seek professional advice from your accountant if you believe any of them may apply to you. While the tax system may seem complex there are 3 basic rules to dealing with this properly:
Remember that not only can failure to deal with your tax affairs lead to your company becoming insolvent, trading on crown debt is the number 1 reason for disqualification as a director. This can now result in a financial penalty falling upon you personally as deemed by the court.
Or in some cases listening to customers too much. Through the rise of social media and otherwise customer feedback is even more public than it was before with the ability to review any kind of business now available.
This will however also mean filtering out between people with genuine concerns and people who are just trying to get a free lunch. In all cases responding to complaints appropriately should be a cornerstone of your business.
Where someone has had a genuine problem, if you are able to fix things for them quickly and with little inconvenience, this can be an excellent marketing tool as they will then go on to tell others about the service they received. Also, the genuine ones will highlight where you can make improvements to your business to avoid future complaints or even give you ideas you never had yourself.
It is also necessary to deal with the complaints you feel are not genuine and you need to be ready to fight your corner. There is partially now a culture of people threatening to give you a bad review unless you give them some kind of benefit. In these cases keep details of the actual incident and be ready to provide a comprehensive response and your own version of events. Dealing with this head on can be just as good a marketing tool, with some of the best responses going viral, and a true picture of the facts will often embarrass people into removing bad reviews.
Here are some examples of people dealing effectively with poor reviews reviewtrackers.com/respond-negative-reviews
Finally, the internet is full of interesting information that can cause a distraction, sometimes too much of a distraction. So now that you’ve read this highly informative and helpful article, stop wasting time reading articles online, get back to work and make your business a success.
If you wish to continue spending time reading articles rather than doing this please do not hesitate to contact one of our business rescue experts for some free impartial advice.