This company was incorporated in 2011 and its trade was distributing newspapers from their depo to customer mainly major newsagents anyone who sold the papers.
We set them up for VAT and Payroll with HMRC and they had 3-4 staff.
When we were preparing the financial statements, we noticed that there was no payment for the VAT had been made or any reference to the return being submitted. So, in our year end meeting we raised the question with the directors and they said they had been paid.
This carried on until 2016 when they got a letter from the VAT debt recovery department showing all the outstanding VAT returns and what they recon their return looked like and what was due to them and to get all returns up to date within 30 days and pay any money that is due.
By then the company had grown in sales to £150,000 per year so this was a sizeable debt for them coming up. We immediately rang the VAT office and spoke t the person in charge of getting this up to date who to my surprise was very helpful.
Preparing the VAT Returns
So went ahead and started to prepare and submit the VAT return one by one so the first few went in fine and he made payment of the first two returns and then the payments to HMRC slowed down while we were still getting them up to date and submitting the following year.
Things then took a turn for the worse with the company he worked for had a change of management and the transport manager was a friend of the boss and he wanted him out so a friend of his could have the work. So payments of his invoices were getting slower and was up to 60 days.
They then all directors to sign off the invoices but they were only together on a quarter when they had a management meeting, so we then looked raising them in smaller amounts less than £1,000.00as he was told that they did not need signing off but this made no difference.
Eventually an officer called from the VAT office and asked why the returns were not up to date and why the delay, so we explained to him. He then said that before he can help he needs all the return in so they can assess the whole liability and he would help where he could which he did.
So the returns were in and they added up all the unpaid returns the applied the surcharges and the late payment interest which totalled £130,000.
He then got a loan of £10,000 from his bank to help with this. When the VAT office sent an officer from debt department to collect some money off him in a meeting they asked how h was going to pay it back and he said:
£10,000 now (the Loan)
£1,500.00 per month on standing order
They accepted this but said and non-payment the amount will be due in one payment.
Payment were being taken from his account as agreed until the company he worked for starting to delay payment to 74 days which meant that all the money coming into the account he had to pay the mortgage, food etc first.
This carried on for about six weeks until the VAT office threatened him with winding the company up unless this brought his corporation tax and PAYE up to date. So I phoned them up and they said nothing could be done until he pays the £35,000 so he starting paying them this but they stopped the VAT repayment due to the winding up order.
After a further 6 week this amount was cleared, and the VAT repayments started again but he was even further behind.
The VAT returns continued to go in and payment for the arrears continued to be taken by direct debit but the payment for the current VAT return was always paid just before the next one was due.
This carried on for about another 9 months and they stopped taking the arrear by direct debit and cancelled the agreement and started to chase the money in full.
Wind Up Order Again
The HMRC then put another petition to the high court to wind the company up and only when it was about to go to court did he want to start repayments again when they said to me on a telephone call they want the debt in full in order to stop the action but he did not have the money.
To save the company one option was to have an insolvency practitioner take over the running of the company so they will handle all money and payments and they pay a % pet £1 that comes in depending what the judge sets and once the entire debt is clear they would return to control to him.
They wanted £20,000 fee to get this going and further monthly fees for administration charges with the possibility of this lasting a long long time.
This could have all of been avoided if he had started getting the VAT returns in on time at the start. Even though the company he contracted for were slow at paying there were options like time to pay he could have used.
- Always get your VAT returns in on time.
- Always pay your VAT returns on time.
- If you can’t pay, then call the time to pay helpline and agree direct debit payment over 3 months.
- Keep on top of your debtors so you know who owes you money.
- Use direct debits to collect your fees in.
- Remember that if you want a re mortgage, business finance, government contracts they will insist on all taxes being up to date.
- If you can earn more doing the work pay someone to this (VAT Returns) for you.