Hard Times but don’t fall foul of the VAT man!
In the current climate, many businesses will be experiencing cash flow difficulties and may be looking to restructure or refinance in order to raise much needed cash. At such a time, VAT is often overlooked but there can be a painful sting in the tail!
The first thing to remember is that if you have debtors of more than 6 months old, you can adjust for the VAT already paid to HMRC, subject to certain conditions. On the other hand, if you have unpaid supplier invoices which are more than 6 months old, you are required to adjust for the VAT you have already claimed on your VAT returns.
If you pay your VAT by electronic means, (e.g. BACS/CHAPS), you will have an extra 7 days to pay the VAT due.
If you are struggling to pay your VAT bills on time, you should contact HMRC before a due date is missed. Late submission of VAT returns/payment of the due amount will lead to default surcharges. Lack of funds is not a reasonable excuse for submitting late returns.
When you contact the local VAT office, you should request a “time to pay” arrangement. This normally means you will be allowed to pay in instalments. However, HMRC will be more likely to agree to this if your business has a good VAT compliance history. Therefore it is important to submit all VAT returns and payments by the due date for as long as this is possible. Also be aware that even if you have entered into a payment arrangement, you may still be liable to a penalty for not paying the full amount by the due date.
If you restructure your business and as a result, dispose of assets/shares, there may be VAT consequences. Professional advice should be sought as there may be simple ways to structure the transactions in a VAT efficient way. This is particularly relevant when disposing of property as the VAT amounts involved will usually be significant. There are many ways to minimise adverse cash flow, by completing the transactions in a certain way.
Date: 20th October, 2008
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