Possible Insolvency - HMRC VAT Return

Hi All,

Have ready quite a lot of contributions regarding Insolvency and our options on the website. I started a company 6 years ago where we provide logistic software to deliver to consumers. After getting a small seed investment in around 10k in 2016, a management accountant advised us we are meant to be claiming back VAT on all the purchases. We then try to claim back this from HMRC, so far we've claimed over £20K in the past 13 months. In the last return submitted, HMRC picked this up for investigation and have asked for the calculations e.t.c.

On speaking to an accountant, we were advised this is a grey area and will cost us a lot to even fight it, we have less than £100 in the bank, we've stopped operations as we can't afford to hire logistic staffs to carry out delivery.

Our accountant is looking to help us sell the company and pay HMRC back. We have no credit card nor other loans. Actually, we never claimed before until last year when our former accountant advised we should be claiming back hence we started claiming late 2016.

In addition, the accountant suggested an IP friend who confirmed we need to pay £5,000 including VAT for the company to go through insolvency. We informed him we have less than £100 in the bank, he wants to spread the money and come up with payment arrangement for me to pay personally.

This will definitely be a burden on me as have not even been getting salary and as a result, I'm seriously considering @Spongebob Plan. We were wrongly advised, wish I knew better. But before going ahead, I thought someone might have better suggestions in terms of how to go about this.

I sincerely appreciate the time. Thanks for your help.

 

Sorry, may be missing something here. Can calculations not be supplied to HMRC? You have receipts you are claiming VAT back on?

 

As we buy the item and resale without charging VAT on it, HMRC claimed we are not supposed to claim back. Our accountants also confirmed we'll need to pay back. We have receipts of the purchases (although not all) but the transactions are all in our database.

 

Is the supply an exempt supply for VAT which means you shouldn't have registered for VAT in the first place?

 

Good question! As we resale food items which are reheated on arriving at customers, we have since regarded this as zero rated. We only claim back from the receipt received from vendor.

 

Why is it resold without charging VAT on it?

 

We've just not been charging VAT from the onset.
For example, if you check quiqup.com, a competitor of ours, no VAT's added to their items.

 

Sorry, you paid VAT when buying it but when selling it - it was classed as exempt by HMRC?

 

Yes because the food was already cold, and selling cold food says we should zero-rate it according to the guidance 2.2. I can't paste a link...

 

I don't think that selling the company is realistic. It doesn't appear to be worth anything, it is not trading, and it has a VAT liability of £20k. Who's going to pay money for that?

On the face of it, you are an ideal candidate for the Spongebob Plan. There is no way that HMRC are going to allow the company simply to be struck off - they will almost certainly force it into compulsory liquidation.

So be it. You are not personally liable for the VAT debt and from what you tell us there is no overdrawn Directors Loan Account.

Or is there?

 

Ah get you now.

So HMRC are demanding repayment? Have they added any penalties on yet?

 

Thanks @Spongebob

The company has 100,000 registered users and has delivered over 20,000 orders. As soon as we were advised to be claiming back, we started end of 2016. We still have a whole lots of data we didnt claim for.

We also built a custom capacity-planning algorithm that does some heavy route optimisation stuff for logistic companies. This also has value - we are actually considering R&D credits for this software.

We have no load, and no overdraft. We owe no one.

 

They are yet to add penalty but in their last letter, they sent it with the 'Human Right guide' document and asked us to seek help which looks like they will. They also havent asked us for repayment yet, they are simply still verifying the last claim but in thee letter, they confirmed the return was wrong.

 

@Spongebob Following up, you reckon we won't be able to sell this considering issue with VAT? If so, should we wait for them to send a penalty notice or just follow Spongebob Plan immediately?

Thanks in anticipation,

 

Who advised you about your VAT?

 

The accountant that did our management account in 2016. Hence, we started making claims late 2016.

 

Was the accountant an employee or an accountant in practice?

 

An account in practice actually but he works as an entity. We have the management account he worked on where he invoiced us. What we didn't get is him confirming the VAT advise bit in written as we could have simply presented this.

 

Basic questions, I know.

Aare you registered for standard VAT or the flat rate scheme.

Can you document how you calculated the VAT you are claiming back, via VAT invoices from your suppliers?

Has HMRC stated that your sales cannot be zero-rated?

Have you considered closing this company and starting a new company doing a similar thing?

If you have all those sales amd this wonderful software, why do you only have £100 in the bank?

 

We've just finished building the software and now looking to provide a plug n play mechanism for other similar companies.

Closing the company might seem like an option.

HMRC confirmed sales cannot be zero-rated.

We have documentation which we did send.

Standard VAT