2k vat bill first trading year.

[Carp ltd]

As the title says i have been a little stupid over the last year i am a single director limited company in the construction industry. I owe 2k in vat amd i am yet to do my first years accounts due in june 2016 turnover will be approx 20,000 should i liquidate or do the spongebob plan as i cannot pay the vat my director loans are around 3,000 i live in rented house and have no assets nor does the company only creditor is hmrc. Im just flapping a bit as my accountant has told me the vat man can send me to prison.
Thank you in advance

 

[UK Contractor Accountant]

Why are you vat registered with £20K turnover?

 

[Graham Tyers]

What VAT returns have you made? Have you reclaimed a lot of VAT? That's the only reason I can think of to explain why you would have wanted to register.

 

[Mark T Jones]

Whilst your accountant is technically correct, in reality HMRC or the courts aren't in the habit of sending people to prison for incompetence or even small scale evasion, though there are circumstances where they can pursue you personally for the debt

The big question is whether the business actually has any value to you moving forwards?

If you chose to SB, the likely outcome is that HMRC will get judgement against the company and move on. This will be a small blemish for future businesses you own, but not an insurmountable problem

 

[Carp ltd]

I am on the flat rate scheme labour with materials and keep 10% of my vat returns that is why i registered

 

[Carp ltd]

Whilst your accountant is technically correct, in reality HMRC or the courts aren't in the habit of sending people to prison for incompetence or even small scale evasion, though there are circumstances where they can pursue you personally for the debt

The big question is whether the business actually has any value to you moving forwards?

If you chose to SB, the likely outcome is that HMRC will get judgement against the company and move on. This will be a small blemish for future businesses you own, but not an insurmountable problem

So will they pursue me personnally for the debt? That is what i do not want

 

[UK Contractor Accountant]

You have taken the vat and corporation tax money so hmrc can come after you for repayment of these taxes should they decide to wind the company up.

 

[Clare@ClarityTaxation]

Are you making a profit? If so, do you think the business is viable in the future? Rather than closing you could call HMRC to arrange a payment plan, pay back a set amount each month until you repay the full amount, and still continue your business.

I'd de-register for VAT as not only are you not complying with the requirements, which means they may kick you off the Flat Rate Scheme anyway, but you're also presumably paying your accountant to complete the returns etc for you. The professional fees you save could be used to repay HMRC.

You mention you're in the construction industry - have you filed CIS returns too?

 

[Carp ltd]

Are you making a profit? If so, do you think the business is viable in the future? Rather than closing you could call HMRC to arrange a payment plan, pay back a set amount each month until you repay the full amount, and still continue your business.

I'd de-register for VAT as not only are you not complying with the requirements, which means they may kick you off the Flat Rate Scheme anyway, but you're also presumably paying your accountant to complete the returns etc for you. The professional fees you save could be used to repay HMRC.

You mention you're in the construction industry - have you filed CIS returns too?

Thank you for your reply! Yes i have filed cis returns through RTI and the business is profitable for me i just got into a mess with the vat i am thinking of setting up a payment plan and use the VAT i gain to pay it towards the bill and im due a vat return end of may i can pay. Any idea how long hmrc give you to pay? And also my end of year accounts are due end of june is it true i get 9 months to pay my CT as if so i will be able to pay that by then.
Thank again

 

[Clare@ClarityTaxation]

You have 9 months and 1 day after the year end to pay CT, but go careful if it's your first year as you may have two different payment dates a few days apart. You can actually pay early and receive interest, so worth considering if you can (it's more interest than you'd get from a bank!)

HMRC will need to talk through your circumstances before deciding how long to give you to pay, but it's in their interests to ensure its realistic. They'll want to know how much you're taking out in salary & dividends, what your expenses are etc. Call them and explain, make an offer and see what they say. They can often be quite reasonable

 

[jimnotgym]

Good advice from Clare. De-register for VAT and keep going. Ask for a payment plan, what do you have to loose.

To anyone else reading, forming a limited company and registering for VAT is more trouble that is is worth for a trader starting at these levels. As has been shown it is unlikely that you are going to avoid personal liability for any debts and the tax advantage is eaten up in accountants fees. If you profit + salary (depending on structure) approaches £50k then it is probably worth structuring as a limited company. Don't register for VAT unless you have special circumstances or are reaching the threshold, it just makes you more expensive to private customers.