Once a company reaches turnover of £85,000 in a 12 month period, they must register for VAT, and submit quarterly VAT returns accordingly. VAT returns are submitted electronically, with payment of the VAT owed due on the deadline date for submission.
If you cannot pay your VAT on time, you run the risk of financial fines in the short-term, and further legal action against your company in the longer-term if you do not bring your tax position up to date.
HMRC operate a penalty point system for late submission or late payment of VAT for accounting periods beginning after 1st January 2023. You will be issued with a penalty point as soon as you miss a VAT deadline. You will continue accruing points until you reach a designated threshold. After this has been reached, you will receive a £200 fine for each subsequent penalty point you receive. Once these fines start mounting up, your company's financial position can start to deteriorate and you may find it difficult to get back onto a solid footing.
If you cannot make payment of the VAT you owe, it is still advisable to continue submitting your quarterly returns. This shows HMRC of your willingness to comply with your legal obligations as company director, even if you are financially unable to make the payments required.
It may be possible for your company to enter into a Time to Pay arrangement with HMRC in order to deal with your outstanding tax obligations. A Time to Pay arrangement can include all form of tax debt including VAT and corporation tax. As part of the payment plan, you will be to clear your debt to HMRC through a series of monthly instalments rather than having to do this at once.
You will only be able to enter into a Time to Pay plan if you are confident that your company will be able to clear all of its HMRC arrears, as well as any upcoming payments, within a period typically not exceeding 12 months. You must also be able to convince HMRC of this fact too.
If your company has found itself unable to pay other creditors as well as HMRC, you may need to consider a more encompassing solution. A formal insolvency process such as a Company Voluntary Liquidation, or placing the company into administration, could allow you to renegotiate your liabilities with all of your creditors - including landlords, trade creditors, and HMRC - in order to get your company back to a position of profitability.
For any company rescue or restructuring process to be initiated, however, you must be able to demonstrate that the business is viable and that it has a chance of turning around its fortunes. A licensed insolvency practitioner will be able to take an impartial overview of your company and its current financial position before recommending the most appropriate course of action.
In some instances, it may be that the company's VAT liabilities in conjunction with other debts, has taken it beyond the point of rescue. If this is the case, it is best for all concerned to bring the company to an orderly end by placing it into liquidation. This helps protect the position of creditors as far as possible, while also ensuring directors are adhering to their responsibilities as the owner of an insolvent company.
As a general rule, a director is not personally liable for the debts of a limited company and this includes VAT and other outstanding tax debt. There are some exceptions to this, and if there is a clear instance of fraud then that director could be ordered to personally contribute to a company’s shortfall.
If your problems with paying the VAT, however, are simply down to cash flow problems and an overall declining financial position, it is unlikely you will be required to repay HMRC using personal funds if your company enters formal insolvency proceedings such as liquidation.
A company director is responsible for the submission of accurate VAT returns; even if you have enlisted the help of an accountant to submit the return of your behalf, it is you as the director who is ultimately responsible for ensuring its accuracy and that it is filed with HMRC on time. Any errors made by an accountant with regards your company's VAT, will unfortunately not be judged to be an adequate excuse by HMRC
However, it may be better for you to take control of the situation and consult with a licensed insolvency practitioner with a view to placing the company into voluntary liquidation rather than waiting for it to be wound up by the court and the initial meeting will not cost you a penny.
If your company is unable to pay the VAT, you must make it a priority to resolve the situation as soon as possible. You could speak directly to HMRC, or you could enlist the help of an insolvency practitioner to conduct these negotiations of your behalf. At Begbies Traynor, our insolvency practitioner have years of experience liaising with HMRC on behalf of companies who have fallen behind in their tax obligations.
If VAT is just one of a number of debts your company is struggling to repay, you should consult a licensed insolvency practitioner to understand your options, and ensure you are not continuing to trade while knowingly insolvent. Contact our expert team today for immediate help and advice.
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