Sole trader unable to pay VAT owed and business not trading - what happens?

[Weave]

Advice please…. A sole trader was operating as a VAT registered business for 12 months and did not pay the VAT for the last two quarters as was not making enough profit. The business rented a property which was then damaged beyond repair and the tenancy is now being ended. There is no way to trade out of the situation as the business can only operate in the location the property was at.

The sole trader has no assets other than an old car, no home of their own. The business assets were all rented. Sole trader owes 10’s of thousands in VAT so no chance of paying off by working a typical job. HMRC are being paid very small amounts to give them something and they are adding interest to the debt.

What action are HMRC likely to take when they are told there is no possibility of repayment due to the size of the debt?

Thanks for any info.

 

[DWS]

Advice please…. A sole trader was operating as a VAT registered business for 12 months and did not pay the VAT for the last two quarters as was not making enough profit. The business rented a property which was then damaged beyond repair and the tenancy is now being ended. There is no way to trade out of the situation as the business can only operate in the location the property was at.

The sole trader has no assets other than an old car, no home of their own. The business assets were all rented. Sole trader owes 10’s of thousands in VAT so no chance of paying off by working a typical job. HMRC are being paid very small amounts to give them something and they are adding interest to the debt.

What action are HMRC likely to take when they are told there is no possibility of repayment due to the size of the debt?

Thanks for any info.

The problem you have is because you were trading as a sole trader that debt now belongs to you personally, HMRC could look to make you bankrupt, it may be best to contact some debt management charities, I know others have posted the names of some on this forum before so maybe they can help.
If you owe 10,s of thousands in VAT, what happened to the VAT money?

 

[Weave]

For clarity, this is not my debt, someone has confided in me and I am trying to guide them.

This person took over a business but had not run one before. They did not control/monitor their profit margins, over staffed and had high energy costs. I also think there was an element of sticking their head in the sand and hoping it would sort itself out. It has come to a head now trading has had to stop.

Sounds like it’s bankruptcy then, I will search out the charities you mention. Thanks.

 

[ChrisCallaghan]

If they are unable to come to an affordable arrangement, then realistically they are looking at either bankruptcy or an IVA (based on the level of debt)

The usual personal debt charities won't advise due to the debt being business related. If they would like to speak to a charity, try the below:

Debt advice | Free Debt Advice and Support | Business Debtline

www.businessdebtline.org

Alternatively, I'm happy to offer some time for some free advice if that would be helpful.

 

[Weave]

Many thanks for the link and offer of free initial advice. That is much appreciated. I will share this info and hope it will help the person move on to the next steps.

Thanks again.

 

[Lisa Thomas]

DRO or DMP may also be worth exploring. Speak to Stepchange to get proper advice on the options:

StepChange Debt Charity. Free Expert Debt Help & Advice

 

[japancool]

Tens of thousands of VAT debt implies at least a hundred thousand in revenue - and not enough profit? And damaged their premises beyond repair?

I'm a little, shall we say, dubious, certainly about this person's fitness to run a company.

 

[Paul Kelly ICHYB]

not making enough profit

Note to all startups and new VAT registered businesses: This is what happens when you use the money you collect for VAT as general funds.

Work out your average VAT payment (it will not be 20%) and separate that, not touching it except to pay your VAT bill.