Help! Impending HMRC Doom :-(

[PLMarsden]

Hello everyone, I really hope somebody here may be able to advise me on what to do as I’m really making myself pretty ill over it.

Long story short - I had a small and profitable business, my wife had a small and profitable business, we were both very happy.

We tried to merge the two and scale up a couple of years ago and we completely screwed it up. We scaled fast, things got big, we worked our collective balls off and ended up making a loss of around £30k.

With no borrowing or access to borrowing, the VAT savings account kept us afloat.

We were late paying last years VAT bill which ended up in a nice man coming to the office and listing assets to take off us. Luckily we cut a deal with HMRC and paid them what we owe. Now however, the next VAT bill is due and it’s another £30k again.

The business is now finally profitable but we’re still £30k in the hole for past mistakes and HMRC are losing patience quick. This business has taken everything from us, and almost cost us our marriage. We’ve finally got into profit but feel we might just be too damn late.

Order book is full for us both, lots of work coming up throughout the year all with healthy profit margins, but I just don’t know what to do right now.

Ideal outcome: Go back to how we were, split the business back to what it used to be, and find a way to square things up with HMRC

Okay outcome: Find a way to get our assets sold off or out of the business and close it down, and carry on doing what we’re doing as separate some traders

Bad outcome: HMRC come in and take all our stuff off us, prevent us from trading, and we both get jobs stacking shelves in Tesco.

Any help would be really appreciated because I really can’t carry on with this much longer :-(

Pete

 

[Mr D]

Its a limited company?

You need to get professional advice from an insolvency practitioner.
May be multiple options or just one.

HMRC tend to want their money - one way or another.
Could the arrears be paid over 12 months from the profits along with making the normal VAT payments from the customer payments?

 

[PLMarsden]

Its a limited company?

You need to get professional advice from an insolvency practitioner.
May be multiple options or just one.

HMRC tend to want their money - one way or another.
Could the arrears be paid over 12 months from the profits along with making the normal VAT payments from the customer payments?

Hello Mr D!

It is indeed a limited company. I was hoping that since I was given a payment plan for last year’s bill and stuck to it religiously that they’d be more likely to offer me the same terms, but when I phoned their contact centre last week I was told that it “depends who I get” because actually, having a previous payment plan usually means you won’t be offered another...?

Pete

 

[PLMarsden]

Not trying to rip anyone off or wriggle out of my responsibilities, but if HMRC won’t offer me a payment plan they’ll end up taking my meagre possessions and selling them for pence, whereas if I can carry on trading now that we’re in profit I can start digging myself out of this!

Pete

 

[Scalloway]

I echo Mr D and suggest you speak to an insolvency practitioner. They can take an objective look at your company and suggest ways out.

 

[Ian J]

if HMRC won’t offer me a payment plan they’ll end up taking my meagre possessions and selling them for pence,

They may be able to take the company's possessions but they won't take yours as it's a company debt and not a personal one

 

[WeddingsInWales]

I had exactly the same issue with the VAT man and I think we had it more than once. We are a seasonal business and winter trading is always slower, so we often get ourselves in a position where we cannot pay all our bills in the first calendar quarter. Latterly we have managed to avoid this situation by promoting winter wedding deals, but it took a few years to get this pesky first calendar quarter to balance enough to pay all our bills. So in our experience, particularly when they know you are profitable, they will give you a payment plan but as other commentators have said, you may need an accountant or someone with authority to represent you to the VAT man. Longer term, it may be better if your two businesses are separate trading activities, to separate them and let one or both stay below the VAT threshold. It is quite a big jump going from not VAT registered to losing 20% of your turnover to VAT. I hate VAT and in the hotel business our outgoings are mostly wages and things we cannot claim back against VAT.

 

[PLMarsden]

I had exactly the same issue with the VAT man and I think we had it more than once. We are a seasonal business and winter trading is always slower, so we often get ourselves in a position where we cannot pay all our bills in the first calendar quarter. Latterly we have managed to avoid this situation by promoting winter wedding deals, but it took a few years to get this pesky first calendar quarter to balance enough to pay all our bills. So in our experience, particularly when they know you are profitable, they will give you a payment plan but as other commentators have said, you may need an accountant or someone with authority to represent you to the VAT man. Longer term, it may be better if your two businesses are separate trading activities, to separate them and let one or both stay below the VAT threshold. It is quite a big jump going from not VAT registered to losing 20% of your turnover to VAT. I hate VAT and in the hotel business our outgoings are mostly wages and things we cannot claim back against VAT.

Without going into too much detail, we’re actually in a very similar line of business - and yes, the ‘end of season lull’ really kills us.

While myself and my wife’s business do dovetail nicely at times, they are suitably different enough not to ever fall foul of any VAT avoidance rules.

My first idea was to use some of my freelance self-employment income to buy assets from the limited company (at the full going rate) so that I’d own them myself - meaning the company could pay more of its VAT arrears....and give HMRC less to pilfer if it did go wrong..!

Pete

 

[Mr D]

Not trying to rip anyone off or wriggle out of my responsibilities, but if HMRC won’t offer me a payment plan they’ll end up taking my meagre possessions and selling them for pence, whereas if I can carry on trading now that we’re in profit I can start digging myself out of this!

Pete

Unfortunately HMRC are somewhat interested in getting their money as quick as they can, one way or another.
Their money was spent , they luckily enough at the moment just chase the company for their money.

If they gave you time to pay over say 12 months out of the profits could you cover that entire debt?
Not run up more.
Taking assets doesn't do them much good - not sure what other options they have.

Not sure what size debt they would look to wind a company up with, have heard its more likely the bigger the debt.

 

[Mr D]

While myself and my wife’s business do dovetail nicely at times, they are suitably different enough not to ever fall foul of any VAT avoidance rules.



Pete

Would splitting a VAT registered business into 2 non VAT registered separate businesses not itself be seen as VAT avoidance by HMRC?

 

[PLMarsden]

Would splitting a VAT registered business into 2 non VAT registered separate businesses not itself be seen as VAT avoidance by HMRC?

Possibly, I’m not sure - we merged two very different businesses together to create this one. If we separated then each business would be just as different - it’s not like we’re a fish and chip shop trying to set up Fish Ltd and Chips Ltd. I guess it’d be down to individual opinion!

Pete

 

[PLMarsden]

Unfortunately HMRC are somewhat interested in getting their money as quick as they can, one way or another.
Their money was spent , they luckily enough at the moment just chase the company for their money.

If they gave you time to pay over say 12 months out of the profits could you cover that entire debt?
Not run up more.
Taking assets doesn't do them much good - not sure what other options they have.

Not sure what size debt they would look to wind a company up with, have heard its more likely the bigger the debt.

I honestly think if I was given 12 months I could sort it - £30k (it’ll probably wind up being less once I pay over the few grand I do have put away) is gonna work out at less than £2.5k/month. That’s do-able.

Pete

 

[Mr D]

I honestly think if I was given 12 months I could sort it - £30k (it’ll probably wind up being less once I pay over the few grand I do have put away) is gonna work out at less than £2.5k/month. That’s do-able.

Pete

Is it doable while also paying ongoing VAT?

I have heard occasionally of people being asked to have payment on account. As in paying quite a sum up front towards the VAT they are going to collect.
One company had a £100k payment on account bill.

 

[PLMarsden]

Is it doable while also paying ongoing VAT?

I have heard occasionally of people being asked to have payment on account. As in paying quite a sum up front towards the VAT they are going to collect.
One company had a £100k payment on account bill.

Yes, we can maintain our interim payments on top of that.

If they issue a demand for payment on account it’ll be game over, and they’ll get nothing.

 

[Mr D]

Yes, we can maintain our interim payments on top of that.

If they issue a demand for payment on account it’ll be game over, and they’ll get nothing.

All that debt and no assets?

Won't bother HMRC that much, its not their money. They expect to write off some debt every year due to nothing being available.

 

[PLMarsden]

All that debt and no assets?

Won't bother HMRC that much, its not their money. They expect to write off some debt every year due to nothing being available.

Okay not nothing, but if I were to eBay the lot today for the going rate, you’re looking at around £10k on a good day. I’d imagine a HMRC auction would get half that at most.

It was my idea to maybe try and come up with the money to buy it all myself and put that £10k towards the arrears, that way we’d keep it and HMRC would get a lump sum to show willing on our part and also get us out of wind-up territory.

Pete

 

[Mr D]

Okay not nothing, but if I were to eBay the lot today for the going rate, you’re looking at around £10k on a good day. I’d imagine a HMRC auction would get half that at most.

It was my idea to maybe try and come up with the money to buy it all myself and put that £10k towards the arrears, that way we’d keep it and HMRC would get a lump sum to show willing on our part and also get us out of wind-up territory.

Pete

However if the company sells its assets for £10k and pays that money to HMRC, how does company carry on?

 

[PLMarsden]

However if the company sells its assets for £10k and pays that money to HMRC, how does company carry on?

Honestly, I think at this point the idea is to wind down that part of the business and I’ll continue to freelance as/when using the kit. The wife’s side of the business doesn’t use any of the assets anyway - she’s the brains of the operation lol

Pete

 

[Gordon - Commercial Finance]

If you can genuinely say that paying it up over 12 months would be feasible, and if HMRC won't let you do that payment plan, then you can get a debt facility to spread the cost of your VAT bill.
However if you're on the brink of financial ruin, then that wouldn't be a good idea, and you won't get that facility anyway.

Its all a bit confusing. You could manage if HMRC would let you pay it over 12 months, but you haven't asked them yet whether they would accept that? Or have I misunderstood?
Now you've mentioned you're just going to wind the business up, but continue using the "kit". Is that kit an asset of the business? If you shut the business down to avoid this bill, then the kit isn't yours to use unfortunately.

 

[PLMarsden]

If you can genuinely say that paying it up over 12 months would be feasible, and if HMRC won't let you do that payment plan, then you can get a debt facility to spread the cost of your VAT bill.
However if you're on the brink of financial ruin, then that wouldn't be a good idea, and you won't get that facility anyway.

Its all a bit confusing. You could manage if HMRC would let you pay it over 12 months, but you haven't asked them yet whether they would accept that? Or have I misunderstood?
Now you've mentioned you're just going to wind the business up, but continue using the "kit". Is that kit an asset of the business? If you shut the business down to avoid this bill, then the kit isn't yours to use unfortunately.

Sorry, I’m not the best at explaining things as it is, let alone when my head is as mashed as it is right now! :-(

So. 12 months to pay it off - it’d be hell, but it’d be so-able. It’s £2.5k/month, last year when we were late paying they’d only accept £3.5k/month and we made it work, so yes, difficult but do-able.

Unfortunately when we looked at debt facilities elsewhere, many wouldn’t touch VAT arrears, some were scared of our two years of losses, others looked at my personal credit rating (awful) and ran a mile. So at the moment I feel it’s HMRC or nothing.

If HMRC let us pay over 12 months then happy days, but if they don’t, they’ll be turning up with a van to take our stuff away, so my backup plan was to buy the kit myself for it’s true value (circa £10k) and pay this off the bill, then wind it up knowing that the gear is safe - I don’t know if that’s even an option, it’s just something that came to mind.

Keeping the business running now that it’s finally profitable is definitely what I’d prefer to do, and then if in future we decide to split it and go freelance again then that’s up to us, and we can close down our affairs with no debts.

I’m just trying to cover all bases, there’s a lot of work in the order book and I don’t want to let anyone down or lose our livelihood.

Pete

 

[pentel]

It may be worth while doing 2 year monthly profit and loss forecast along with a 2 year cash flow forecast, using best guess figures

Having done that do versions with best case and worse case scenarios.

With a bit of tweaking you may be able to come up with a plan or realise that something may have to change.

 

[Lisa Thomas]

It's true that if the first person you speak to won't agree to a TTP then hang up and ask the next person...

Whatever you decide to do, you need to take advice from an IP.

Also, if you start making the payments on account anyway it will take HMRC a bit of time to get any recovery plans in place so potentially likely to reduce the debt and make them more likely to agree to a TTP on the balance.

 

[Clinton]

The business is now finally profitable but ...Order book is full for us both, lots of work coming up throughout the year all with healthy profit margins...

Sometimes people kid themselves that there's a brighter future ahead.

But if it really is as you say - and there's all this high margin new business coming in - send me the financials and tell me how much of liquidity you need at this point (and what percentage of your business you'd be willing to give in exchange for that).

 

[WaveJumper]

Sometimes people kid themselves that there's a brighter future ahead.

But if it really is as you say - and there's all this high margin new business coming in - send me the financials and tell me how much of liquidity you need at this point (and what percentage of your business you'd be willing to give in exchange for that).

Plus you have to ask to run up the VAT bills we talking about here, turnover must have been pretty good, so where did all that money actually go.

 

[Lisa Thomas]

DLA...?

 

[Aurelius]

If you can afford to buy your business's assets for £10,000 why don't you just ring HMRC, explain the situation, tell them you can make a £10,000 down payment on the debt and set up a payment arrangement for the remaining 20k?