What can I do if my business is behind with VAT and PAYE payments

Benjamin Franklin has been quoted as saying “In this world nothing can be said to be certain, except death and taxes”. Nothing can be more true if your company does not pay the tax that it owes to HMRC. It will eventually die. However the death of the company is often avoidable if proper professional advice is taken early enough.

When times are hard, cash flow is dreadful, the business is merely ticking over and the Bank won’t lend any more, it is tempting to use HMRC as a bank of last resort, if only for a short while until things improve. Once that has happened, you can find that the arrears of tax due to the Revenue become core “borrowing” and cannot be paid back. Then HMRC start making noises about wanting the arrears brought up to date. They may threaten a visit, to seize goods or to present a petition for winding up.

What options are available to you if you have got to one of these points?

The advice and possible solutions we at Frost Group can offer depend on where in the recovery process you are with HMRC. The following two avoid a formal insolvency and assume that the company continues to trade.

Time to Pay Arrangement (“TTPA”)

If your business can afford to make monthly payments to reduce your arrears with HMRC as well as continuing to trade normally, it may be possible for us to negotiate a TTPA with them. However the attitude of the Revenue has changed towards these arrangements and they now require far more in terms of compliance. If you have had a previous TTPA it is very unlikely that you will be given a second bite at the cherry. The information required by us in order to put forward a TTPA is very similar to that needed for a CVA (see below) and would include, but not be limited to,

  1. A Statement of Affairs (a balance sheet redrafted to reflect the real world value of assets and liabilities)
  2. Profit and loss forecast for the period of the arrangement
  3. Cash flow forecast for the same length of time
  4. Details of the amounts due to the company’s other creditors and
  5. Most importantly a Business Plan

Company Voluntary Arrangement (“CVA”)

If you are unable to manage payments to HMRC to reduce the arrears without causing problems with your other creditors then a CVA may be appropriate. This type of arrangement would only be proposed if your business was viable and/or additional capital was to be introduced into the company to make the payments to creditors. The proposal of a CVA contains creditor pressure until the creditors meet to approve (or not) the proposals. The arrangement could provide to return to creditors anything up to 100p in the pound in a period of up to five years. Trading would continue normally whilst the agreed payments were made but you must keep up to date with PAYE and VAT payments. Bear in mind that some of your suppliers/ customers may not wish to continue to do business with you. A CVA allows the directors of the company to stay in control and allows them to concentrate on turning things round.

If the company has got to the position where it can no longer trade or faces a winding up petition presented by HMRC and a TTPA or CVA are not suitable, the options are Administration or Creditors’ Voluntary Liquidation. If the company has little or no assets our advice may even be to allow the HMRC petition to proceed.

It is important to be aware of the possibility of personal liability of directors for wrongful trading (that is continuing trading knowing that liquidation was inevitable) which is measured by a Liquidator as the increase in liabilities from when you should have known it was inevitable to when liquidation actually occurred. If you think you may be heading in that direction speak to us, we can help.

Dealing with HMRC can be a daunting prospect, after all you owe them money and they want it paid. They may put unrealistic demands and deadlines into any arrangement that may be negotiated by you in the absence of professional advice which inevitably leads to the first one of Benjamin Franklin’s certainties, so speak to us first.

If you are behind with your PAYE or VAT (or both) and it is becoming a problem, please contact us. We do not charge for an initial consultation. We have offices in London, Croydon and Bournemouth and can meet during or after office hours at a time and location suitable for you.

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