VAT Debt

[Franco Genarro]

Hi Guys,

my business was running successfully before the Covid-19 restrictions, business stopped during the restrictions and that causing me to spend all the savings and company assists when seating at home doing nothing. I am now have to pay about £6000 VAT return from last year VAT return after return back to business. but because the business is running very slow and not able to employ anyone because I am not able to afford there payments, I am doing the work my self and income is low.
VAT want to claim there money by passing the debt to a collection agency. I also sold my personal car to cover the cash flow problem and I have no assists left behind.
the only way for me to close down the company is to be through Liquidation which will cost me more than £5000 or by strike off the company.
if I go to strik off the company, does the VAT man will objected and I will be liable to pay?
or what I have to do guys. please advise

 

[Gyumri]

If the company can tick over by proposing a time to pay arrangement over say 2 years to settle the vat debt then do so. If hmrc demands their pound of flesh in one lump sum then you can't continue as you would be trading knowing that you are insolvent.

Your only option then is to do nothing and let hmrc wind the Co up, or appoint a liquidator yourself. The vat debt will die with the company.

Others here will suggest the SpongeBob plan which is worth reading.

 

[Franco Genarro]

If the company can tick over by proposing a time to pay arrangement over say 2 years to settle the vat debt then do so. If hmrc demands their pound of flesh in one lump sum then you can't continue as you would be trading knowing that you are insolvent.

Your only option then is to do nothing and let hmrc wind the Co up, or appoint a liquidator yourself. The vat debt will die with the company.

Others here will suggest the SpongeBob plan which is worth reading.

Hi,
Thanks for your reply, they refused my offer to pay the outstanding balance by instalment on 2 years.

 

[Franco Genarro]

Hi,
Thanks for your reply, they refused my offer to pay the outstanding balance by instalment on 2 years.

the liquidator will cost me min £5000 plus VAT , which is equal 90% from the original debt.

 

[Gyumri]

Then do nothing as by law you can't continue trading anyway. Hmrc will likely petition to wind up the company and their debt will die with the company.

Hmrc must have thrown away fortunes in winding up companies even where the directors have pleaded for time to pay - but I suppose there must be some rational social reason behind the policy.

Most ordinary creditors would be happy to agree a time to pay arrangement as opposed to getting nothing.

 

[Franco Genarro]

Then do nothing as by law you can't continue trading anyway. Hmrc will likely petition to wind up the company and their debt will die with the company.

Hmrc must have thrown away fortunes in winding up companies even where the directors have pleaded for time to pay - but I suppose there must be some rational social reason behind the policy.

Most ordinary creditors would be happy to agree a time to pay arrangement as opposed to getting nothing.

thanks for your reply.

shall I cancel my VAT registration and change the company status to Dormant ?

 

[Gyumri]

Why do anything? The company is insolvent and cannot continue trading. HMRC will probably wind it up after you inform the time to pay unit that the company cannot pay the vat debt as demanded in one lump sum and must therefore cease trading. End of story.

Spend your time and money productively on a new business. It may be advisable to apply for vat registration for the new company the sooner the better.

 

[WaveJumper]

And maybe going forward remember the VAT money is not yours, you are just collecting it (for free) on behalf of HMRC keep it in a secondary account to resist dipping into it. Obviously you hope to offset what you collect by what you incur along the way.

 

[kulture]

Why do anything? The company is insolvent and cannot continue trading. HMRC will probably wind it up after you inform the time to pay unit that the company cannot pay the vat debt as demanded in one lump sum and must therefore cease trading. End of story.

Spend your time and money productively on a new business. It may be advisable to apply for vat registration for the new company the sooner the better.

Let’s be more accurate here. Your company is insolvent. You must stop trading. You should inform HMRC of this. For just £6000 it is unlikely that they will petition to wind you up. So you would be better off doing the SpongeBob plan.

Be very careful starting a new business. Get professional advice from a liquidator as you must ensure that any asset owned by the old company is either not used or paid for at the proper market rate. Likewise carrying on the same trade with the same customers and perhaps a similar company name is a potential minefield.

I am moving this thread to insolvency so you can get better advice.

 

[clyde123]

To be very clear, the debt is not YOUR debt, it is the LIMITED COMPANY's debt.

 

[Chris Parkman]

I would recommend that you have a telephone meeting with an Insolvency Practitioner. I do not charge for first meetings, and neither do most IPs, including the other IPs on this forum.

It would be better to explore all of the options that are available to the Company with a licensed insolvency practitioner.

 

[ChrisCallaghan]

Hi @Franco Genarro ,

Like others have commented, I would suggest that it is worth while speaking with an insolvency advisor like myself or @Chris Parkman. Our consultations are free of charge and of no obligation. Ultimately you may still decide that the liquidation route is too costly, but at least then you will have taken professional advice. It also doesn't hurt to shop around for quotes.

In answer to some of your questions in your original post:

Will the VAT office object to an application to strike off your company? Yes, I would say it is likely, however £6,000 may be too low on their radar for objection. Even if they do object, this does not cancel out your application, it suspends the application. Eventually HMRC will either cease to object or take action to wind up your company, aka compulsory liquidation. If you have not done so already, see the below link for the full SpongeBob guide that explains much of this:

CLOSING A LIMITED COMPANY WTH INSUFFICIENT FUNDS WITH WHICH TO PAY AN INSOLVENCY PRACTITIONER

CLOSING AN INSOLVENT LIMITED COMPANY WITH INSUFFICIENT FUNDS WITH WHICH TO PAY AN INSOLVENCY PRACTITIONER If a company is unable to carry on trading due to becoming insolvent the standard procedure for closing it down is for the directors to appoint an Insolvency Practitioner to liquidate it...

www.ukbusinessforums.co.uk

You also asked if you would be liable for the debt if the VAT office object to a strike off application - the simple answer is no. This is a liability of your company, not a personal debt.

 

[Mr D]

Agree, go for spongebob plan to dissolve the company.
HMRC tend to object - let them. They object and still keep ringing you and writing to you.
Does not change what assets the company has or change company income.

The company is liable for the debt until the company is dissolved. You personally do not owe that debt.
Though as it was never the company's money in the first place HMRC can be somewhat annoyed that their money was spent on other things.

Next time you have a VAT registered business keep the VAT money seperate, in a savings account with money moved to the account each week or month.

 

[Franco Genarro]

Hi Guys,

thanks for replying back to me. Today I received a message from Companies house saying (Voluntary strike-off action has been suspended).
correct me if I am wrong, I will apply again for a strike the company off the register once I achieve three-month time for the first apply for strike off according to the SPONGEBOB PLAN.

 

[Paul Kelly ICHYB]

NOTE TO ALL STARTUPS/NEW BUSINESSES RE VAT:

And maybe going forward remember the VAT money is not yours, you are just collecting it (for free) on behalf of HMRC

 

[ChrisCallaghan]

Hi Guys,

thanks for replying back to me. Today I received a message from Companies house saying (Voluntary strike-off action has been suspended).
correct me if I am wrong, I will apply again for a strike the company off the register once I achieve three-month time for the first apply for strike off according to the SPONGEBOB PLAN.

Hi Franco, no need to apply again. The crucial wording is that your application has been suspended, i.e. not cancelled.

A new date will have been set for your strike off application to go through, though sadly Companies House will not inform you of this new date. Creditors still have the right to continue with any objections, but sooner or later they will cease objecting, or take action to wind up up your company. Please feel free to call me if you would like to talk through this process.

 

[Franco Genarro]

Hi Franco, no need to apply again. The crucial wording is that your application has been suspended, i.e. not cancelled.

A new date will have been set for your strike off application to go through, though sadly Companies House will not inform you of this new date. Creditors still have the right to continue with any objections, but sooner or later they will cease objecting, or take action to wind up up your company. Please feel free to call me if you would like to talk through this process.

sure, Thank you.

 

[ChrisCallaghan]

sure, Thank you.

My direct line is 0114 229 1138 should you wish to call.

 

[Franco Genarro]

Agree, go for spongebob plan to dissolve the company.
HMRC tend to object - let them. They object and still keep ringing you and writing to you.
Does not change what assets the company has or change company income.

The company is liable for the debt until the company is dissolved. You personally do not owe that debt.
Though as it was never the company's money in the first place HMRC can be somewhat annoyed that their money was spent on other things.

Next time you have a VAT registered business keep the VAT money seperate, in a savings account with money moved to the account each week or month.

Hi, I am not going to registered VAT anymore, I run the business myself to avoid paying to accountant.

 

[WaveJumper]

Have to say just because someone is not VAT registered doesn't mean you might not need an accountant