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VAT

According to statistics released last month as part of a wider FOI release, 156,000 businesses out of 590,000 that took advantage of the VAT deferral offered between 20 March and 30 June 2020 have failed to get in touch with HMRC. 

They have not repaid any money owed even though the deadline to either repay in full or arrange a repayment plan passed on 30 June 2021. 

The total amount of outstanding tax was £2.7 billion of which 9% was made up of VAT deferrals. Additionally £17.8 billion of VAT has been repaid and another £13 billion is due through agreed monthly instalments. 

The VAT Deferral New Payment Scheme was set up to allow businesses to self-serve by spreading their deferred VAT payments by up to 11 equal monthly instalments, interest and penalty free. 

An HMRC spokesperson said: “Businesses had up to 30 June to make arrangements to pay deferred VAT, so those who failed to take action should contact HMRC to pay what they owe. 

“They may still be eligible to receive support with their tax affairs through our Time to Pay service. These arrangements are agreed purely on a case by case basis and tailored to individual circumstances and liabilities.”

Now, HMRC will begin their efforts to reclaim as much outstanding VAT debt as possible and will make every effort to do so. They have begun by announcing that any business that fails to get in touch to arrange a payment plan for their overdue VAT payments will face penalties of 5% of the money owed plus interest. 

The next step usually involves bailiffs and other direct debt enforcement measures. 


How will HMRC handle bounce back loan arrears and debt?


Chris Horner, Insolvency Director with Businessrescueexpert.co.uk, said: “In our years of experience, we know that HMRC are not happy when businesses ignore their liabilities - whether they’re behind on VAT payments or have bounce back loan debt they can’t repay.

“They have no problem letting their debt management unit loose to enforce and secure debts - especially if the owners or directors haven’t been in touch with them. Even before the pandemic, HMRC was the most tenacious and committed creditor any business could face.  

“Now the government has a real vested interest in recovering owed debt - whether it be VAT, outstanding bounce back loans or CBILS borrowing - HMRC will be happy to be seen to be leading the crusade. 

“Usually HMRC can be negotiated with if a business approaches them to let them know they will have difficulty making repayments. If HMRC come knocking themselves then time to pay arrangements are more difficult to negotiate and if there are significant liabilities involved then debtor companies should be prepared to face the prospect of court action and subsequent penalties. 

“Additionally, HMRC has also recently been granted new powers to make directors and members of businesses personally liable for debts where there’s a risk the business will fold so it’s even more important than ever for business owners or directors to get advice if they are in this position.” 


Explainer - What is VAT?

VAT - or Value Added Tax - is paid by any UK business if their taxable turnover exceeds or is expected to rise above £85,000 in any 12 month period. 

If a business reaches this threshold then they have to become VAT registered although any business generating less than this can register if they choose to.  

VAT registered companies have to submit regular VAT returns so HMRC can estimate how much is owed. Returns can be submitted electronically every quarter unless the company applies for dispensation to file them manually.  

It’s important to gain this as filing paper returns without express prior permission incurs an automatic £400 fine.  

VAT returns must also be filed within one calendar month and seven days of the end of an accounting period - and the deadline for paying any VAT owed in full falls on the same date. 


What are surcharge periods and notices of assessment?

One of the things we take pride in is cutting through jargon and official terms to try and explain - in plain English - what things mean. 

With VAT, there are one or two confusing terms that crop up with regularity so we’ll do our best to go through them. 

If a business is late or non-compliant in paying VAT by the deadline, or they dont pay in full then their account is said to be in default and they may enter a surcharge period. 

This lasts for 12 months and adds penalty charges for future defaults based on a percentage of the outstanding VAT amount owed - although the business is not issued with a penalty for its first VAT default. 

If further defaults occur during the surcharge period then the percentage increases with each occasion and the initial 12 month surcharge period will be extended each time it happens. 


Act now to save your business because everything changes next month


If a company fails to submit their VAT return on time or pay the amount due then HMRC will send a VAT notice of assessment of tax. 

This is a summary of what HMRC believes should be due in VAT. 

On receipt of a notice of assessment, a business has a couple of options. 

They can send a completed VAT return and pay any owed amount; they can notify HMRC within a 30 day window if they believe the estimate is too low and produce an accurate and corrected VAT return and associated payment. 

This is important to get on top of because a company could receive a penalty for willingly paying an assessed amount they know to be lower than it should be. 

If the assessed amount is greater than you believe it should be, unfortunately there is no appeal procedure. The business should submit an accurate VAT return and pay the exact amount due. 

A business should always submit a quarterly VAT return even if it can’t afford to pay the due VAT. This shows HMRC that they are complying with requirements they can meet and prevents an excessive notice of assessment being issued. 

Not being able to pay VAT payments, PAYE arrears, bounce back loan arrears or any other debts when they come due might be a sign of a bigger issue - that the company might be insolvent or might inadvertently be guilty of wrongful trading

The most important thing to do in this situation is not to panic but to calmly get in touch with us to arrange a free initial consultation

We will go through your predicament with you in detail to understand what has transpired so far, where the business is and will report back with the options you have quickly. 

We have negotiated with HMRC on countless occasions and know that they prefer honesty and transparency. 

We do too because this will give you more room to maneuver and chance to turn things around than you might think you have. 

Our experience also tells us that the sooner you act, the better it is for everyone.

Deadline
 
 
 
 
 
 
VAT Deferral
 
The government announced a temporary, three-month VAT deferral on March 26th 2020 which is now coming to a close. 
 
Quarterly and monthly VAT returns for February, March and April this year or any other payments due between March 20 and June 30 2020 were deferred but are now eligible to be paid again.
 
Any VAT payments incurred from July 1st will be eligible for payment unless a prior arrangement is made with HMRC. Consequently, if your most recent VAT quarter ended in May, you will be required to pay your VAT on or before July 7th.
 
Any companies that did defer VAT payments should now set-up any cancelled direct debits again with enough time for HMRC to take payment, otherwise they could risk a late payment penalty. 
 
Deferment didn’t mean cancellation - any deferred VAT payments still have to be paid in full either on or before March 31st 2021, as additional payments with subsequent returns or as separate payments. If you are likely to have difficulties making your VAT payment, please contact us and we can discuss your options, including a possible time to pay agreement.
 
Winding-Up Petitions and Statutory Demands
 
The issuing of a statutory demand for payment of an outstanding debt possibly followed by asking the court for a winding-up petition to be issued against a company will also be valid once again from July 1st 2020. 
 
There may be some initial confusion as one of the more highly promoted provisions of the new Corporate Insolvency and Governance Act 2020 is a suspension of the issuing of winding-up petitions and statutory demands until September 30th 2020.
 
It pays to read the small print - this only applies to debts that can be shown to have been caused specifically by the Covid-19 outbreak and response. 
 
For instance, a restaurant supply company that has seen its trade dry up would be protected because it could show that the hardship caused by all of its customers closing their doors at once is down to Covid-19. 
 
An online retailer that has continued to trade during the past three months and hasn’t paid suppliers for services would not be protected unless it could prove otherwise. 
 
Flexible Furloughs
 
Stage One of the Coronavirus Job Retention Scheme (CJRS) closes on June 30th 2020 and Stage Two automatically begins on July 1st. 
 
Among the changes coming will be flexible furloughing and other measures designed to help employees return safely to work. 
 
In Stage Two, employees will be allowed to perform some work for their employer under full pay and be paid 80% of their salary for the remainder of the time. 
Also there is no minimum furlough period beyond the statutory one working week to be observed, so employers will now have additional flexibility to rotate furloughed staff more rapidly to reacclimatise them to the new working environment. 
 
From August 1st, the level of support under CJRS will begin to be reduced with employers starting to pay furloughed staff’s NICs and pension contributions. 
This will continue for the rest of the period with employers paying 10% of their wages up to £312.50 per week in September and 20% up to £625 per week up to October 31st when the scheme is due to end.
As well as being the last day of Stage One of CJRS, June 30th is also the last day when new applications will be accepted to the scheme too. 
 
High Court Enforcement Action
 
As more employees start coming back to work it would be remiss of us not to mention that this also includes High Court Enforcement Officers, or bailiffs. 
 
We’ve previously written about how their professional body - the Civil Enforcement Association (CIVEA) - have put together working advice for how their members can function while the Covid-19 lockdown is being gradually lifted.
 
And it’s worth noting that as courts start to hear more cases then this follows that there will be more work for the enforcement officers to do as more judgements are passed. 
 
Despite the various measures included in the new insolvency act including the suspension of Commercial Rent Arrears Recovery (CRAR) notices, County Court Judgements (CCJs) can still be obtained for outstanding rent and High Court Enforcement subsequently applied for. 
 
High Court Enforcement Group have confirmed that whilst restrictions apply on the ability to visit residential properties until 24 August, they can now visit commercial properties and take control of goods. With the limits on other enforcement methods, it's likely you can expect a significant increase in the use of enforcement agents to recover commercial debts in the next few months.
 
As Churchill sagely observed: “Now is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”
 
There’s been a lot for business owners and directors to master regarding the Covid-19 response and a lot of it is about to change in the next 24 hours. 
 
If you’re worried about your business reopening and how you can keep open for the next few weeks and months then get in touch with us

VAT returns
 
 
 
 
 
 
It’s one of the reasons we write our blog but it can be tricky, even for us, to keep on top of all of the benefits directors and business owners may be eligible to claim for their company. 
 
For instance - did you know you could defer your VAT payments by three months?
 
It’s true. If you’re a UK VAT registered business and your next VAT payment is due anytime between 20th March and 30th June 2020 then you have the option to defer this payment until a later date. 
 
If you want to pay it as usual then you can, but it offers some flexibility that might be appreciated if needed at the moment. 
 
Similarly, any business due to make a self-assessment Income Tax payment on account by 31st July 2020 has the option to defer their payment until January 2021. 
 
Remember - this is also an optional arrangement and unlike business rates has to be paid at some point. 
 
The offer is automatic, just make sure that if you have a direct debit set up, and you want to defer, then it is up to you to cancel it, which you should be able to do from your online banking system.
 
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New Year’s Day was just three months ago.  Honestly it feels more like three years ago. 
 
Every business in the country will be affected by the Coronavirus pandemic - possibly in ways that won’t become apparent for some time. 
 
Even if things look OK for your company today, you can still arrange a free initial virtual consultation with one of our team.
 
An experienced advisor will go through any concerns you might have and help you come up with a roadmap to assuage them and leave you feeling more confident than you did before. 
 
They can also point out any potential trips and traps when they know about them to help you adapt and alter your plan if required.

minimum wage
 
So when eleven of the most influential bodies across these sectors actively join forces to send a strong, single message with a unified voice then it’s worth paying attention.
 
The group - including R3, the professional insolvency trade body, the City of London Law Society and the Chartered Institute of Credit Management - have written to the Chancellor, Sajid Javid, to signal their opposition to proposed changes to HMRC’s creditor status in insolvency cases. 
 
The crux of their objections is that it will make it harder to rescue and restructure companies in distress, reduce access to finance for small businesses and enterprises, increase the harm done to other businesses in insolvency cases and could ultimately result in lower funds being recouped for the Treasury. 
 
“While we understand that the government wishes to increase the value of taxes repaid in the event of insolvency, there’s a serious risk that the wider costs of the government’s approach will outweigh any expected benefit,'' they write. 
 
“This proposed policy would reverse successive governments’ attempts to encourage a culture of business rescue in the UK, and would undermine the government’s recent work to strengthen the UK’s insolvency and restructuring framework. 
 
“The proposal may have a significant and negative impact on access to finance in the UK, and will increase the impact of corporate insolvencies on pension schemes, trade creditors, consumers and the wider business community.”
 
From April 2020, certain taxes owed by insolvent companies - VAT, PAYE and employee NICs will be paid to HMRC ahead of floating charge holders and other unsecured creditors including the company’s pension scheme and its suppliers. 
 
Peter Walton, Professor of insolvency law at Wolverhampton Law School and one of the signatories of the letter said: “Research carried out during the time when HMRC was last paid ahead of unsecured creditors showed the policy made it harder to rescue companies. There’s a real risk this will happen again if the policy is reintroduced.”
 
 We are experts in all aspects of business rescue and restructuring from advice all the way through to overseeing the administration process. Contact us today to set up a free initial consultation when we can discuss your options and how your business can survive and thrive.

Brexit
 
We got an interesting email from the government the other day. 
 
Specifically the HMRC which should make anyone sit up and take notice - once you’ve checked it’s genuine
 
It reiterates that the UK will be leaving the EU on 31 October “whatever the circumstances” - their words, not ours - and sets out some of the things that a business should do to prepare itself for the changes to the current customs situation. 
 
The stand-out news is that HMRC are automatically issuing VAT-registered businesses with a UK EORI (Economic Operator Registration and Identification) number.  
 
This will allow companies to move goods in and out of the UK after October 31 and theoretically it will be impossible to do so without one although interestingly it states specifically that an EORI number is not required to move good between Northern Ireland and The Republic of Ireland
 
In order to apply a company will need: 

 
So far, some 72,000 companies have already registered for an EORI number while HMRC have written to the remaining 88,000 to inform them and encourage them to apply.  
 
Chancellor Sajid Javid said: “The move will help ease the flow of goods at border points and support businesses to trade and grow.”
 
Dr Adam Marshall, Director General at the British Chambers of Commerce (BCC) welcomed the auto-enrollment but stressed it was only a first step. 
 
He said: “For many firms, it will trigger more questions. Businesses still need clarity on many other cross-border trade issues, such as customs procedures at borders following a no-deal exit and when the Government will launch an official database to provide ease of access to information on tariffs and quotas.”
 
There are also other recommendations to get a business Brexit ready including:
 

 
While there will be more updates to follow as the Brexit situation clarifies (or not), this is the first official communication received directing businesses to act in a specific way. 
 
It’s probably not going to be the last. 

As mentioned above, there are penalties you could face if you do not stay on top of your VAT returns. We will aim to outline the potential consequences, with options for those already struggling.

Tax arrears penalties

Preparing VAT returns is critical to the longevity of your business, particularly if you fall into tax arrears and do not have the resources to pay the fines. The deadline for VAT returns is one calendar month, and seven days after the accounting period. Without a good excuse VAT returns must now be filed online via the HMRC portal. While HMRC may offer ‘grace’ for companies if it is their first late payment within 12 months, you will still, likely, receive substantial fines.
While smaller businesses - those with a turnover of less than £150,000 - do face tax penalties, larger corporations face more pressing consequences. With the first default, no surcharge is made, but the second, third, fourth, fifth and six will incur financial penalties. You can read more on the tax arrears fines here.
There are many reasons you could face these penalties, including:

If you do suffer the latter, you must contact HMRC immediately and negotiate a time to pay arrangement.

VAT

Have you registered?

As mentioned above, not registering for VAT is a reason your business may incur charges. Many smaller businesses do not register, simply as they believe their company will not perform well enough to qualify. However, this excuse is not valid with HMRC, and they will continue to calculate your bill and place it into arrears.
To avoid any surprises and potential/ increasing debt, you must get in touch with HMRC and discuss the following:

It’s important to note that sole traders must still submit quarterly VAT returns, and any debt will be considered personal. Therefore, the debt is subject to potential seizure and, in the very worst case, a winding up petition.

Tips for preparing VAT returns

Companies must file accurate VAT returns, and you can do so with the aid of your accountant or an in house bookkeeper. Most accounting software will prepopulate your VAT returns to make this task much simpler. However, if you still struggle, we highly recommend speaking to an accountant for those unable to file the returns, as the wrong information could also incur penalties or trigger a tax inspection. Those that are suffering from severe cash flow issues may do best to seek insolvency advice in an attempt to rescue the business.
There are tips, however, to staying ahead of the deadline for VAT returns:

Charge the correct amount of VAT

Ensuring that you charge the correct rate of VAT on goods and services is vital. The standard VAT rate for the UK is 20%, and will be charged on most goods. As mentioned earlier, there are exceptions to the rule, such as those goods outside of the scope of the UK and assets that qualify for lower VAT. However, this is a general rule of thumb, but you can find more information on VAT rates here.

Use the right VAT scheme

You can pay VAT liabilities via a number of methods, but you must choose the correct method to ensure you stay on top of the returns.

Standard VAT accounting method

Keep a record of all VAT paid and charged, and every three months this will be used to calculate your returns to HMRC.

Annual accounting VAT scheme

This scheme is available for businesses with a turnover of less than £1.35 million. Only one annual VAT return is submitted. From there, your company will then make quarterly interim payments on the estimates you owe.

Flat rate VAT scheme

The choice for most smaller companies with a turnover of less than £150,000. You pay a percentage of your turnover to cover any tax liabilities. VAT is still charged on invoices, but it is not required to keep records on all VAT transactions.

Cash accounting scheme

A cash accounting scheme involves paying VAT on sales when the customer pays, and reclaiming VAT on purchases when paying suppliers.
If you are unsure of which scheme to choose, seek advice for guidance on preparing the VAT returns. If you continue to miss payments, you will receive surcharges.

Keep records

All businesses should keep accurate VAT records for at least six years, and you must ensure they are meticulous and readable. The best thing you can do to protect your company is to accurately record all sales and purposes. Should you ever require insolvency advice or face the prospect of liquidation, these records will help show you acted in the best interest of the company.

Pay by direct debit

If there’s one piece of debt management advice you must take away, it’s to pay your VAT returns through direct debit. HMRC will automatically take the correct amount from your bank within three working days of the deadline, ensuring your VAT bill is always paid. You will still need to submit your quarterly returns, however, and late filing will mean the payment is delayed.
You can also ask for reminders when logging into your online account to make sure you never miss a deadline. For those that are struggling to pay their bills and suffering from serious cash flow issues, we recommend seeking insolvency advice at the earliest possible moment. Our business rescue experts can work with you and your business for the best possible solution for survival.

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 VAT Penalties
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.

Late registration

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 business

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:

Larger business

If your business has a turnover of more than £150,000, there are more pressing consequences for your company.

Default surcharge

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.

Valid VAT surcharge appeal reasons:

Insolvency

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.

Business Rescue Expert is part of Robson Scott Associates Limited, a limited company registered in England and Wales No. 05331812, a leading independent insolvency practice, specialising in business rescue advice. The company holds professional indemnity insurance and complies with the EU Services Directive. Christopher Horner (IP no 16150) is licenced by the Insolvency Practitioners Association

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