Guide to avoiding HMRC VAT penalties
When your business is experiencing cashflow problems and you are unable to pay VAT due to HMRC you will be leaving yourself open to receiving large VAT penalties. Not only could you have these VAT penalties imposed on your business, but if you continue to trade whilst your business is insolvent then you can become personally liable for these debts. Non-payment to HMRC can be a very serious matter, but if you address the issue early on you can avoid further VAT penalties and avoid the risk of HMRC issuing a winding up petition against your business, which in turn may lead to a court order, known as a winding up order, forcing your company into liquidation.
Instances for receiving HMRC VAT penalties
In addition to receiving VAT penalties for late payment (up to 15% of the overdue payment), HMRC can also issue VAT penalties if mistakenly the incorrect amount is paid (up to 30%), or in cases of deliberately concealing the amount of VAT due (up to an additional 100%).
In cases of incorrect payment amounts or inaccurate returns, HMRC has the power to assess the amount of VAT it believes is due, as well as issuing penalties. It is important to know the rules around VAT and if uncertain, to get expert advice. For example, you may not have known that you can also receive VAT penalties if you fail to deregister your business for VAT, when you no longer meet the requirements to charge customers VAT. This is just one example of where you can get into difficulty simply by not knowing all the rules.
How to avoid VAT penalties
By acting early and approaching us to deal with HMRC on your behalf, as soon as you know you will have problems with payments, you can potentially avoid hefty VAT penalties. The thing that you must not do is to try to mislead HMRC by submitting incorrect VAT returns, or allowing them to issue estimated assessments, which you know are underestimated. The best thing to keep yourself out of trouble and not put your business at risk, is don’t wait until you receive default notices; act quickly, honestly and with intent to pay. With this approach you will achieve a much better outcome and we could negotiate an HMRC Time To Pay Arrangement, allowing you up to 12 months to pay your arrears and get your business back on track. In some cases it can even be possible to successfully re-negotiate previously agreed payment plans with the help of our expert support, when new arrears arise. It is always best to get our advice when the problem first arises, as assumptions on receiving VAT penalties and potentially being forced to go down the route of an insolvency process may not always be correct – even when you have defaulted on payments, we have many examples of helping to get businesses back on track and we could be helping you.
Already received VAT penalties?
If you have been through a period of negative cashflow, you may have already fallen into arrears with HMRC and you may already be subject to VAT penalties, even in this case it is still possible to negotiate payment with HMRC. The important thing is not to bury your head in the sand. Once you are in the penalty regime, it is easy for the problem to escalate and that is not in your interest and does seriously prejudice the financial stability of your business and the longer you ignore the problem the fewer options are open to you and the less control you will have over what happens to your business.
For more information on HMRC Time To Pay, view our relevant pages:
Contact us now if you can’t pay your tax bill. Intervention at the earliest opportunity is more likely to result in a favourable outcome and VAT penalties can be avoided, if early action is taken, even if you can’t make payment on the due date.
By Carl Faulds
| 26th March 2014
