VAT Tax Debt - HMRC Tax Advice

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VAT Tax Debt

There are a number of reasons for ending up with a VAT problem. For the purposes of this article we are going to deal with the problems caused by financial strain. However, some of the other causes - e.g. failure to submit a return may involve some of the same solutions.

VAT is normally payable quarterly and as you are unable to make the payment when required it is a strong indication that your business has liquidity problems. This means that there are potentially more serious issues that have arisen. As VAT is now 20% this is a significant sum and when this is due it is often the worst cash point that a company reaches every quarter. So if there is a liquidity issue, this is sure to bring matters to a head.

To illustrate some of the underlying causes:

  • Over-trading - where the business is growing fast but has inadequate cash to cope with an increasing debtor book.
  • Cost efficiency issues; this manifests itself in a number of ways - more cost competitive businesses reduce sales prices and this will hit margins. If corrective action is not taken the business will struggle financially. The introduction of technology by other businesses will hit companies who cannot afford to make this kind of investment.
  • Cash flow planning may not be done and cash issues come up without notice. VAT Tax Debt may thus occur.
  • Downturn in business due to recession; change in consumer spending.
  • Failure of major customer.
  • One can extend this list without difficulty.
  • VAT Tax Debt Solutions

The tax authority will know almost instantaneously of a default because either a return is not made or no payment is enclosed with the return or paid online. So it is important to communicate with HMRC the issues and seek to ameliorate the issues. They will want to know what is to be done and what payments are possible.

Talking to an adviser to discuss issues, discuss solutions is relevant at this time. The solutions may include seeking assistance in terms of payment schedules whilst the business trades out of the liquidity crisis or seeks new cash injection. If this is not feasible, then more serious options need to be considered.

Company Voluntary Arrangements, Creditors Voluntary Arrangement, Administration or Receivership. The business may be sound but there is so much history of debt or some difficult contracts that a Prepack Administration might be considered. Effectively this means that the historical problems are left behind with the old company.

These are all significant solutions and discussion and consultation with an adviser who has relevant experience is important at this stage and should not be delayed. Each business situation is unique in terms of the range of causes and the particular business elements, but a structured approach will help determine the most appropriate course of action.


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