Ltd Company - In a Mess

upthecreek · Nov 17, 2012

Hello,

Thank you for everyone giving their free advice here, i've found it comforting but I think the mess I am in is worse than the examples that I have found!

Here is my situation:

I set up a limited company in 2011, my accountant also submitted a VAT registration form which appears to have gotten lost in the system. Despite many requests, my accountant have confirmed that we should just reapply. This is 18 months after starting trading and I still have no VAT number.

Here is the problem.

I have put together my accounts and can now see that I do not have enough funds in the bank to pay the VAT (when eventually the registration is successful). I have taken dividends and a wage from the company which was doing very well in the first year but I have simply overspent given that now the incoming business is much reduced.

There is currently £80k in the bank account but the VAT will be in the region of £140k and this leaves nothing for CT or PAYE.

I don't even have a VAT number even though i've been chasing for months. This is a real mess and I can't believe its got this bad. The company has no other assets. I have personally downsized and live in rented accommodation, apart from HMRC/VAT - no-one will be owed money. At this time, until the accounts are submitted, i'm not even sure what will be owed.

What can I do? I don't have any personal assets to cover the VAT or CT shortfall. Help?

Paul_Rosser · Nov 17, 2012

If you have been collecting VAT from sales then where has this money gone ? as it's not the companies money it should be sitting in a seperate bank account waiting to pay the HMRC when required.

Dividend payments can only be taken from profit after CT, PAYE etc have been accounted for, so in this case I think any dividend would be classed as illegal and would need to be paid back to the company.

Do you want to keep the business running ? If so speak to the HMRC, explain the situation and see if they will accept a payment plan.

Rich_T · Nov 17, 2012

Interesting, i'm hopefully going to be applying for VAT soon and never realized there was a wait for the number - how long is it on average?

Sorry to hear of your problem.

Paul_Rosser · Nov 17, 2012

It doesn't normally take that long for a VAT number, mine took about 2 weeks.

Guessing if the HMRC loose the forms then it can take a while though.

Tej · Nov 17, 2012

Should you have been charging VAT with being VAT registered??

and.. how did you make any VAT returns

Paul_Rosser · Nov 17, 2012

You start to account for VAT once you make your application -

Waiting for VAT registration and what to do in the meantime
It currently takes around a month for HM Revenue & Customs (HMRC) to process applications for VAT registration, although it can take longer if they need to carry out additional checks.
You must start keeping records and account for VAT from the date when you were required to register, even if you have not received your VAT registration number and certificate. If you are registering voluntarily, you must account for VAT from the date you asked for on your application form.

Tej · Nov 17, 2012

Paul_Rosser said:
It currently takes around a month for HM Revenue & Customs (HMRC) to process applications for VAT registration, although it can take longer if they need to carry out additional checks.
.

18 months? to process an application?

Paul_Rosser · Nov 17, 2012

Tej said:
18 months? to process an application?

Yeah I saw that and personally I would have been chasing them after 6 weeks.

Regardless though if the OP was charging VAT on sales then that money should be somewhere safe and ready to pay the HMRC.

However as they seem to have lost the original VAT application they may be willing to accept a payment plan, but will depend on if the company is going to carry on trading and how much they can afford to pay back.

Tej · Nov 17, 2012

Guess OP and his accountant have some questions to answer!
unbelievable shortfall... moneywise!!

Paul_Rosser · Nov 17, 2012

Tej said:
Guess OP and his accountant have some questions to answer!
unbelievable shortfall... moneywise!!

Sure have, mostly around where all the money has gone as if they have a CT bill then the firm must have been making a profit.

Depending on the OP's year end CT isn't due for 9 months and one day after then, so may give them some breathing space.

kevin.doran · Nov 17, 2012

A 60k shortfall on VAT alone in 18 months without even considering CT?? Wow, where on earth has it gone?

Paul_Rosser · Nov 17, 2012

Platform said:
A 60k shortfall on VAT alone in 18 months without even considering CT?? Wow, where on earth has it gone?

Hopefully on stock as then the OP could look at finance secured against it

PrestonLad · Nov 17, 2012

upthecreek said:
Hello,

Thank you for everyone giving their free advice here, i've found it comforting but I think the mess I am in is worse than the examples that I have found!

Here is my situation:

I set up a limited company in 2011, my accountant also submitted a VAT registration form which appears to have gotten lost in the system. Despite many requests, my accountant have confirmed that we should just reapply. This is 18 months after starting trading and I still have no VAT number.

Here is the problem.

I have put together my accounts and can now see that I do not have enough funds in the bank to pay the VAT (when eventually the registration is successful). I have taken dividends and a wage from the company which was doing very well in the first year but I have simply overspent given that now the incoming business is much reduced.

There is currently £80k in the bank account but the VAT will be in the region of £140k and this leaves nothing for CT or PAYE.

I don't even have a VAT number even though i've been chasing for months. This is a real mess and I can't believe its got this bad. The company has no other assets. I have personally downsized and live in rented accommodation, apart from HMRC/VAT - no-one will be owed money. At this time, until the accounts are submitted, i'm not even sure what will be owed.

What can I do? I don't have any personal assets to cover the VAT or CT shortfall. Help?

A 140K VAT bill... for a limited company that was only set up 18 months ago??

It's hard to estimate your turnover from that as it depends so much on the service/goods you supply... but does this suggest your new Ltd company has done 1-2 million pound turnover already - or even more?

It's possible. Before you set up the company, were you already trading?

I'm not being funny.. there has clearly been so much incompetence from people and professionals involved here, that it is worth double checking whether you really do owe that amount.

Are you sure your accountant has offset the VAT you can claim back on stock, capital stuff and services that you've bought in this time?

Like I say, it's quite possible that you've run up such a bill, but it would be pretty rare, hence why I think it's worth questioning.

bizrep103 · Nov 17, 2012

If your quarterly VAT bill is £140k then you have a good turnover, hard to believe you have not got proper advice on a business this size.
You need insolvency advice. I can recommend Tim Corfield of Griffin and King 01922 72233, very friendly and used to this type of situation. Unless you had a ruck of money owed to you in addition to that £80k you I would advise getting professional advice sooner rather than later.

upthecreek · Nov 17, 2012

Thank you for all your responses!

I've been chasing the VAT application for 12 months, in the end HMRC said I have to reapply as it seems to have just been lost.

The £140k is how much VAT has been collected during the 18 months, nothing has yet been offset but I am sure to not have enough funds left to pay it all in one go, maybe it will come down to £100k? I know that only leaves me £20k short and any payment plan would certainly allow me to trade out of the problem.

But - how do I know if I should stop trading?

The problem is, the turnover was much higher on the first 12 months than it is now, so many expenses I took on stupidy were on the assumption that growth would at lease stabilise or maybe even increase, but that didn't happen.

If I knew from the start what I knew now then the company would be in great shape. I've messed up by assuming the success would continue.

To remedy, I have downsized everything.. Smaller rented house, smaller car, all bills are now smaller and my drawings are now reasonable. But i'm worried it's too late, if they don't give me time to pay then it's all over.

So now I am 1 month late submitting my first set of accounts, the VAT registration has simply disappeared and it's all in a mess - i've got everything ready to go to the accountant this week so the first set of accounts will be done shortly. I'm just wondering if I should throw in the towel first rather than risk trading insolvent?

Thanks for the number to call - I might have to give it a go. I'm so worried, i've got children to support and i've completely messed up by being arrogant and expecting the success to continue - I took it for granted. How so wrong...

Paul_Rosser · Nov 17, 2012

You mention taking reasonable drawings, be warned as it appears these have been paid from the VAT money and not profit then they would be classed as illegal and if you look at insolvency you would need to repay them.

PrestonLad · Nov 18, 2012

upthecreek said:
Thank you for all your responses!

I've been chasing the VAT application for 12 months, in the end HMRC said I have to reapply as it seems to have just been lost.

The £140k is how much VAT has been collected during the 18 months, nothing has yet been offset but I am sure to not have enough funds left to pay it all in one go, maybe it will come down to £100k? I know that only leaves me £20k short and any payment plan would certainly allow me to trade out of the problem.

But - how do I know if I should stop trading?

The problem is, the turnover was much higher on the first 12 months than it is now, so many expenses I took on stupidy were on the assumption that growth would at lease stabilise or maybe even increase, but that didn't happen.

If I knew from the start what I knew now then the company would be in great shape. I've messed up by assuming the success would continue.

To remedy, I have downsized everything.. Smaller rented house, smaller car, all bills are now smaller and my drawings are now reasonable. But i'm worried it's too late, if they don't give me time to pay then it's all over.

So now I am 1 month late submitting my first set of accounts, the VAT registration has simply disappeared and it's all in a mess - i've got everything ready to go to the accountant this week so the first set of accounts will be done shortly. I'm just wondering if I should throw in the towel first rather than risk trading insolvent?

Thanks for the number to call - I might have to give it a go. I'm so worried, i've got children to support and i've completely messed up by being arrogant and expecting the success to continue - I took it for granted. How so wrong...

So... does this mean you have indeed turned over more than 1.5 million, in the first 18 months of a new company?

If you think you can claim back perhaps 40K VAT then you're not buying huge amounts for such a big turnover. Presumably you're providing a service or some expertise that requires not much buying.

But it does sound like you're guessing a bit. Need a definitive position before you cease trading.

kevin.doran · Nov 18, 2012

PrestonLad said:
If you think you can claim back perhaps 40K VAT then you're not buying huge amounts for such a big turnover. Presumably you're providing a service or some expertise that requires not much buying.

This - can you confirm exactly what you/your business does?

I also can't believe your accountant, knowing you're turning over in excess of £1m, wouldn't be more up to speed with your VAT position. Have you paid him anything yet? If not, I'd consider my position with him if I were you - doesn't sound like he's on the ball.

Posilan · Nov 18, 2012

How did you charge VAT on invoices without a VAT number? Even with an application pending, this is not allowed...

Steve

upthecreek · Nov 18, 2012

I'm turning over almost £400k for the first year (first year was only 9 months long) and am now in to second year, so have collected maybe £145k by the end of this year (which will be almost 2 years of trading). It's a service company and the providers are mostly US based so there is no VAT most of most my costs which is why the offset is not going to help as much as I thought. If I can get some sort of repayment plan that I could trade my way out, im just worried that I'll need too long to get square...

Tej · Nov 18, 2012

Platform said:
This - can you confirm exactly what you/your business does?

I also can't believe your accountant, knowing you're turning over in excess of £1m, wouldn't be more up to speed with your VAT position. Have you paid him anything yet? If not, I'd consider my position with him if I were you - doesn't sound like he's on the ball.

Where is everybody getting this "turnover in excess of 1 million" from?

simple figures work out that to have a VAT liability of 140k.. over 18 Months.. the sales would have been 700k ( all at 20% standard rate)
Presumably there will be some VAT to reclaim??

Posilan · Nov 18, 2012

Tej said:
Where is everybody getting this "turnover in excess of 1 million" from?

simple figures work out that to have a VAT liability of 140k.. over 18 Months.. the sales would have been 700k ( all at 20% standard rate)
Presumably there will be some VAT to reclaim??

Exactly, so in order for the OP to still owe £140k in VAT, it would need to be in excess of £700k to allow for the offset though claiming back.

Something here is not adding up - the OP has an accountant that made the VAT application but lets the client charge VAT on sales knowing it's unlawful to??

Steve

Tej · Nov 18, 2012

Posilan said:
How did you charge VAT on invoices without a VAT number? Even with an application pending, this is not allowed...

Steve

That what I said in the very beginning... but those in the "know" suggested that it was ok

internetspaceships · Nov 18, 2012

bizrep103 said:
If your quarterly VAT bill is £140k then you have a good turnover, hard to believe you have not got proper advice on a business this size.

Firstly I'm so glad you read the OP and the thread so well before making your post. Oh, no you didn't did you?

Secondly as other people have said. This doesn't ring true or add up properly.

Spongebob · Nov 18, 2012

Duplicate Post

Spongebob · Nov 18, 2012

upthecreek said:
Hello,

Thank you for everyone giving their free advice here, i've found it comforting but I think the mess I am in is worse than the examples that I have found!

Here is my situation:

I set up a limited company in 2011, my accountant also submitted a VAT registration form which appears to have gotten lost in the system. Despite many requests, my accountant have confirmed that we should just reapply. This is 18 months after starting trading and I still have no VAT number.

Here is the problem.

I have put together my accounts and can now see that I do not have enough funds in the bank to pay the VAT (when eventually the registration is successful). I have taken dividends and a wage from the company which was doing very well in the first year but I have simply overspent given that now the incoming business is much reduced.

There is currently £80k in the bank account but the VAT will be in the region of £140k and this leaves nothing for CT or PAYE.

I don't even have a VAT number even though i've been chasing for months. This is a real mess and I can't believe its got this bad. The company has no other assets. I have personally downsized and live in rented accommodation, apart from HMRC/VAT - no-one will be owed money. At this time, until the accounts are submitted, i'm not even sure what will be owed.

What can I do? I don't have any personal assets to cover the VAT or CT shortfall. Help?

It sounds like, despite your naivety with regard to accountancy matters, that you have a good business here.

I would take advantage of the rules and simply start afresh with a new company while getting the old one struck off. No-one apart from you and your accountant knows of any debt to HMRC and no return has ever been submitted to Companies House. An application for strike off will therefore go through unnopposed.

Conduct all further business through NewCo, learning from your mistakes, and fulfilling all your responsibilities with regard to VAT, PAYE, NI and CT.

Once OldCo has been struck off, no-one will ever look at it again. You have the ultimate 'get out of jail free' card!

internetspaceships · Nov 18, 2012

Bob, ok the advice about going bust and re-starting - I expected it it and fair enough.

But how about more advice along the lines of "you obviously need to learn one heck of a lot more about running a business and its finances before attempting to do it again?"

All this advice to walk away and start again is all well and good but it's a bit sad when people won't be thanked for getting to the root of the problem which is that the guy at the helm didn't know enough, and didn't ask enough either.

Tej · Nov 18, 2012

So...A nice little net profit.. freebie!!... and no repurcussions..

Posilan · Nov 18, 2012

Spongebob said:
It sounds like, despite your naivety with regard to accountancy matters, that you have a good business here.

I would take advantage of the rules and simply start afresh with a new company while getting the old one struck off. No-one apart from you and your accountant knows of any debt to HMRC and no return has ever been submitted to Companies House. An application for strike off will therefore go through unnopposed.

Conduct all further business through NewCo, learning from your mistakes, and fulfilling all your responsibilities with regard to VAT, PAYE, NI and CT.

Once OldCo has been struck off, no-one will ever look at it again. You have the ultimate 'get out of jail free' card!

In this circumstance, what would happen to the customers of the OP?

They would have paid VAT on the invoices, but with no VAT number cannot claim the VAT back (or if they have in error, would cause them problems)...

It's not much different to missing trader fraud is it?

Steve

Paul_Rosser · Nov 18, 2012

Spongebob said:
It sounds like, despite your naivety with regard to accountancy matters, that you have a good business here.

I would take advantage of the rules and simply start afresh with a new company while getting the old one struck off. No-one apart from you and your accountant knows of any debt to HMRC and no return has ever been submitted to Companies House. An application for strike off will therefore go through unnopposed.

Conduct all further business through NewCo, learning from your mistakes, and fulfilling all your responsibilities with regard to VAT, PAYE, NI and CT.

Once OldCo has been struck off, no-one will ever look at it again. You have the ultimate 'get out of jail free' card!

As the OP has taken dividends from the company which would now be classed as illegal due to the company not having any profit to pay such a dividend, would they not be expected to at the least pay these back to cover CT, PAYE and VAT liabilites ?

Spongebob · Nov 18, 2012

Paul_Rosser said:
As the OP has taken dividends from the company which would now be classed as illegal due to the company not having any profit to pay such a dividend, would they not be expected to at the least pay these back to cover CT, PAYE and VAT liabilites ?

If a liquidator was appointed, then yes.

The whole point of applying to have the company struck off however, is that the company is put to death by Companies House without a liquidator being appointed and anyone ever having a look at its finances.

There is absolutely nothing unlawful about the director of an insolvent limited company applying to have it stuck off rather than going through a formal insolvency process. In this way he completely bypasses any investigation into his conduct in running the company, and any overdrawn Directors Loan Account will die with the company - simply because no-one but the director and possibly his accountant will know about it!

Creditors and other 'interested parties' must be advised when an application for strike-off is made, but I have yet to discover any law which compels a director either to inform each creditor of the full extent of the debt, or to make public the existance of an overdrawn DLA.

In any case, the only person able to pursue a director for his overdrawn DLA is a liquidator, and if the company is struck off no liquidator is appointed.

All I am doing is pointing out a huge loophole in the system; I don't make the rules!

internetspaceships said:
Bob, ok the advice about going bust and re-starting - I expected it it and fair enough.

But how about more advice along the lines of "you obviously need to learn one heck of a lot more about running a business and its finances before attempting to do it again?"

All this advice to walk away and start again is all well and good but it's a bit sad when people won't be thanked for getting to the root of the problem which is that the guy at the helm didn't know enough, and didn't ask enough either.

I did say;

Spongebob said:
Conduct all further business through NewCo, learning from your mistakes, and fulfilling all your responsibilities with regard to VAT, PAYE, NI and CT.

The OP clearly needs to find a better accountant who can advise him properly.

Tej said:
So...A nice little net profit.. freebie!!... and no repurcussions..

Pretty much, yes!

Paul_Rosser · Nov 18, 2012

Spongebob said:
All I am doing is pointing out a huge loophole in the system; I don't make the rules!

Wasn't blaming you for a second m8, as always you are the man when it comes to this kind of thing.

Seems strange that the HMRC wouldn't look to have the company liquidated following the proper rules rather than letting them wind it up if someone collected VAT for 18 months and spent all the money....but guess them is the rules.

Is there any chance the HMRC could object to the winding up order ?

Posilan · Nov 18, 2012

Spongebob said:
There is absolutely nothing unlawful about the director of an insolvent limited company applying to have it stuck off rather than going through a formal insolvency process. In this way he completely bypasses any investigation into his conduct in running the company, and any overdrawn Directors Loan Account will die with the company - simply because no-one but the director and possibly his accountant will know about it!

But what about the "VAT" his customers have paid?

From HMRC website http://www.hmrc.gov.uk/vat/start/register/waiting.htm

Invoicing in the meantime

Until you receive your VAT registration number you must not charge VAT, or show VAT on your invoices. To make sure that you do not lose income in the period after you applied for VAT registration but before you receive your VAT registration number, you should increase your prices by an amount equivalent to the VAT rate relevant for your goods or services, and explain to your customers why you are doing so.
Once you receive your VAT registration number you can then reissue those invoices, amended to show your VAT registration number and the VAT charged. This will make sure that your VAT-registered customers may reclaim the VAT that they have paid.

The OP did bill for VAT, so his customers now presumably find their goods and services have now cost them 20% than they thought as they can't claim back....

Steve

internetspaceships · Nov 18, 2012

Nice one Steve.

I'm glad someone else noticed that little detail. Under the VAT regulations those guys will be responsible for the VAT they paid out incorrectly.

upthecreek · Nov 18, 2012

I've worked the VAT out on turnover (approx £700k in 18 months), my accountant told me I should be charging VAT from when I applied for the VAT number but to be honest, I have no idea if I should or shouldn't now. I've taken the VAT owed as 1/6 of the total turnover however this does not take in to account any offset, the problem is terrible, I have really chased up the VAT situation to no avail only to be told my HMRC to reapply as its got lost in the system. The online VAT submission service always said "no returns due" and still does now.

If I don't have to charge VAT then I have no problem as the company is in profit and viable. I should have been on the ball and chased the VAT situation more vehemently. If I owe VAT then I think the company is trading insolvent. Like I said, its a mess.

I have absolutely learnt my lesson, I put all my trust in the accountant thinking that he knew everything. I've got all the correspondence chasing up the VAT situation but I guess that doesn't mean anything. If I knew at that start what I knew now I would be running a healthy business. (I was also guilty of overspending and over confidence, another lesson learnt - things change quickly).

I spent too much time on growing the company and not enough on my responsibilities as a director. I was good at the former but appalling on the latter

internetspaceships · Nov 18, 2012

Please clarify something for me.

When you have billed out £120 have you billed it out as:

£100 charge
£20 VAT

Total invoice value £120

Or have you just billed your invoices as £120 with no mention of VAT?

Also have you been selling to retial end user customers i.e. joe public, or have you been selling to businesses?

kevin.doran · Nov 18, 2012

What is it you do/sell/provide?

How much is your average sale?

Have you physically been charging VAT on your invoices I.e using the term VAT?

I'm struggling to understand why over an 18 month period and £700k of sales, not one of your customers has kicked off over a missing VAT number?

Posilan · Nov 18, 2012

upthecreek said:
I've worked the VAT out on turnover (approx £700k in 18 months), my accountant told me I should be charging VAT from when I applied for the VAT number but to be honest, I have no idea if I should or shouldn't now. I've taken the VAT owed as 1/6 of the total turnover however this does not take in to account any offset, the problem is terrible, I have really chased up the VAT situation to no avail only to be told my HMRC to reapply as its got lost in the system. The online VAT submission service always said "no returns due" and still does now.

Firstly, get yourself a new accountant - a competent one. After applying for VAT registration, you have to account for VAT not invoice for it. You can rectify it once the number comes through.

How do you have access to the online VAT submission service without a VAT number? As far as I recall, you cant register for it until you get the registration certificate.

A quick way to resolve this - on your invoices, did it show:

Total 100.00
Vat 20.00
Total inc vat 120.00

Or did it just show a total?

If it just showed a total with no mention of VAT, you have not "charged" it so don't owe it. If you did mention VAT, you did, incorrectly and illegally..

Even if you didn't charge VAT, there is the issue about you then trading over the VAT threshold knowingly.

Steve

upthecreek · Nov 18, 2012

The sales are digital goods, average price £20, have shown VAT at 20% but no number as I didn't have one. The mess is that I've broken the law whether I charged or whether I didn't. If I shouldn't have charged VAT maybe I can re-send the 35,000 or so electronic invoices with the VAT not listed?

I'm going to try the SpongeBob Plan, if that fails i'll file and then go the Insolvency way, I will update this thread with the results!

Thank you all for your help though, and the PMs.

Spongebob · Nov 18, 2012

Paul_Rosser said:
Seems strange that the HMRC wouldn't look to have the company liquidated following the proper rules rather than letting them wind it up if someone collected VAT for 18 months and spent all the money....but guess them is the rules.

Is there any chance the HMRC could object to the winding up order ?

There is no winding up order - that is the whole point!

When a company is struck off, that is that - it ceases to exist and no investigation is conducted into the reasons for its failure.

When a company is wound up however, the Official Receiver is appointed to act as liquidator and to look into the affairs of the company. This responsibility may be passed onto a licenced insolvency practitioner.

If HMRC was aware that a company owed significant sums in VAT they would certainly object to it being struck off, and initiate winding up proceedings leading to a formal liquidation. If they were unaware however, they would allow the strike off to go through unnopposed.

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