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Time To Pay? New VAT Late Payment Penalties

Written by admin on . Posted in Insolvency, Time To Pay Arrangements, Winding Up Petitions. No Comments on Time To Pay? New VAT Late Payment Penalties

It is now more expensive to be late when it comes to making a VAT payment. The slowest payers now face a 250% increase to an annualised rate. In addition, the rate of late payment interest has also increased.

Late payment penalties

Payment for each VAT return is considered separately, and penalties can be avoided if a payment is made within 15 days of the due date. Keep in mind:

  • An initial 3% penalty is charged if payment is made more than 15 days late (previously 2%).
  • If more than 30 days late, a further 3% penalty is charged – so, a 6% penalty in total (previously 4%).

Furthermore, a daily penalty at an annualised rate of 10% is charged immediately after the initial 30-day period (previously 4%).

Late payment interest

Interest is charged from the due date until the date VAT is paid. This means that interest can be due even when no penalty has been incurred, because of the requirement to pay within 15 days. From 6 April 2025, HMRC has added a further 1.5% surcharge to the late payment interest rate, so it now stands at 8.5%.

With the bank base rate currently at 4.5%, the daily penalty rate of 10% and the late payment interest rate of 8.5% are somewhat punitive.

Preventative measures

Simply burying your head in the sand over an overdue VAT liability will just see the debt spiral as penalties and interest are added on.

Setting up a time to pay arrangement will avoid penalties being charged. However, such an arrangement will not retrospectively remove any penalties already incurred, and late payment interest will still be charged. An arrangement cannot be set up by those using either the cash accounting or annual accounting schemes.

If some funds are available, it is better to make a payment on account by the due date, leaving only the balance to be paid late. This will avoid late payment interest as well as (if no arrangement is in place) penalties on the amount paid on time.

Details about setting up a payment plan can be found here.

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What is a Validation Order (And What Does It Have To Do With a Winding Up Petition)?

Written by admin on . Posted in Bankruptcy, Company Insolvency, Insolvency, Restructuring & Insolvency. No Comments on What is a Validation Order (And What Does It Have To Do With a Winding Up Petition)?

The word ‘Validation’ means different things depending on its usage. The dictionary lists: ‘acceptance’, ‘affirmation’, ‘authorisation’, ‘corroboration’, endorsement, proof, ‘recognition’, ‘verification’.

In the context of insolvency (both bankruptcy and company),  a validation order is a special court order that allows a company to continue using its bank account or carry out specific transactions after a winding up petition has been issued against it.

A winding up petition is a legal step taken by creditors who believe that a company is unable to pay its debts. If granted by the court, the petition can lead to the company’s closure (also known as liquidation), and its assets sold to repay creditors.

Once a winding up petition is filed, the company’s bank accounts are usually frozen to protect the creditors’ interests. However, this can severely disrupt the company’s ability to operate, even if it plans to challenge the petition. This is where a validation order becomes essential.

A validation order allows the company to continue certain financial activities—like paying employees or making crucial payments—while the petition is being dealt with.

Consequences of Advertising a Winding Up Petition in the London Gazette

When a winding up petition is advertised in the London Gazette, it becomes public knowledge. This can have serious consequences for the company:

  • Frozen Bank Accounts: Once the petition is advertised, banks often freeze the company’s accounts to prevent money from being moved around.
  • Damaged Reputation: The advertisement can harm the company’s reputation, scaring away customers, suppliers, and investors.
  • Increased Pressure from Creditors: Other creditors may join in to demand payment, increasing the financial strain on the company.

To prevent these issues, a company can apply for a validation order, which could unfreeze accounts and keep essential parts of the business running.

Need Help with a Winding Up Petition?

If your company has received a winding up petition, it’s important to act quickly. Contact Femi Ogunshakin to discuss how to apply for a validation order from the insolvency courts. Femi offers a free 30-minute consultation to help you explore your options and protect your business. Reach out on 07867 795 439 or email femi@femiogunshakin.com or femi.ogunshakin@nexa.law

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What is a Winding Up Petition?

Written by admin on . Posted in Bankruptcy, Company Insolvency, Insolvency, Restructuring & Insolvency. No Comments on What is a Winding Up Petition?

A winding up petition is legal action taken by a creditor ie HM Revenue and Customs (HMRC) to force a company into closure because it cannot pay its debts.

Essentially, a winding up petition is a request to the court to wind up (or close) the company so its assets can be sold off to repay the money owed. If granted, the company may be placed in compulsory liquidation, meaning it will cease trading, and the creditors will receive payment from the sale of its assets.

How to Avoid a Winding Up Petition

Receiving a winding up petition can be very serious for any business, but there are steps you can take to avoid it:

  1. Pay your bills on time – Ensure that you manage your cash flow well and make regular payments to creditors. This shows that your company is financially healthy.
  2. Communicate with creditors – If you’re struggling to make payments, talk to your creditors. Many creditors are open to discussing repayment plans or negotiating terms rather than going to court. If you’re lucky, you might even get a time to pay arrangement agreed!
  3. Seek professional advice early – If your business is in financial difficulty, it’s important to get expert advice as soon as possible. They can help you restructure debts or explore other options to avoid legal action.
  4. Keep accurate financial records – Monitoring your company’s financial health is crucial. Regularly review your accounts and keep up-to-date records to spot any potential cash flow issues before they become serious.

Free Consultation

If your company is facing financial difficulties or you’re concerned about the possibility of a winding up petition, it’s important to seek advice quickly. Contact me for a free 30-minute consultation to discuss your situation and explore possible solutions. You can reach me on 07867 795 439 or email either femi@femiogunshakin.com or femi.ogunshakin@nexa.law

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HMRC and Time to Pay Arrangements: What You Need to Know

Written by admin on . Posted in Bankruptcy, Company Insolvency, Director Disqualification, Insolvency. No Comments on HMRC and Time to Pay Arrangements: What You Need to Know

HMRC and Time to Pay Arrangements: What You Need to Know

When facing financial difficulties, paying taxes on time can be a challenge for individuals, partnerships, and companies alike. On a discretionary basis, His Majesty’s Revenue and Customs (HMRC) may be willing to offer a  Time to Pay Arrangement (TTP); a flexible solution that allows taxpayers to spread the cost of their tax debts over an extended period. These arrangements are typically agreed upon if HMRC is satisfied that the taxpayer is genuinely unable to pay the full amount immediately but can settle the debt in instalments.

Why Time to Pay Arrangements Are Useful

A TTP agreement helps alleviate the immediate pressure of a tax bill and avoids severe enforcement actions like penalties or interest charges, which could further strain finances. Whether it’s personal income tax, VAT, PAYE, or Corporation Tax, these arrangements offer breathing space for managing cash flow while staying compliant with your tax obligations. HMRC generally expects businesses or individuals to proactively engage with them before defaulting, and they usually respond positively to reasonable requests for payment plans.

Pitfalls of Not Keeping to the Agreement

Failing to adhere to the terms of a TTP arrangement can have serious consequences. If payments are missed, or HMRC believes the business is no longer able to meet the terms, the arrangement can be terminated. HMRC will then escalate recovery measures, which may include legal proceedings.

HMRC’s Escalation Procedures

Once a taxpayer defaults, HMRC will typically send reminders, followed by more formal actions if the debt remains unpaid. This can include:

  • Issuing a statutory demand: A formal request for payment within 21 days.
  • Commencing legal proceedings: HMRC may seek a court judgment for the debt, which could lead to seizure of assets or garnishing of income.
  • Winding up petitions: For companies, failure to resolve tax debts may result in HMRC applying to the court to wind up the business, forcing it into liquidation.

Avoiding Legal Action

It’s crucial to negotiate with HMRC if you foresee any problems with adhering to your TTP agreement. Having professional assistance ensures you make a reasonable case to HMRC and avoid unnecessary legal complications.

Whether you’re an individual, partnership, or limited company, we can help with finding a resolution to your tax debt issues and assist with negotiating a Time to Pay Arrangement with HMRC. For expert advice and assistance, contact Femi Ogunshakin on 07867 795 439 or via email at either femi@femiogunshakin.com or femi.ogunshakin@nexa.law

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First aid for ailing businesses: let us help you!

Written by admin on . Posted in Bankruptcy, Insolvency, Winding Up Petitions. No Comments on First aid for ailing businesses: let us help you!

Sadly, no matter where we are in the economic cycle, there are businesses which find themselves in distress.

Given higher interest rates, increasing costs all round, not to mention the ever-increasing tax burden, it’s not surprising that the insolvency rate for businesses is also going up.

Owners, directors and investors may be worried about the financial health of their businesses and be considering their options.

Sharing our knowledge

Over the next few weeks, I will be publishing a series of short, practical blogs on insolvency related topics, including the effects of debt/insolvency on companies (and/or individuals) struggling to meet their financial commitments.

Read our blogs

Among other useful articles, you can read my blogs on what a winding-up petition is (and how to avoid one) and why a validation order might save your business (by unfreezing bank accounts and keeping essential parts of the business running) on my website.

Book your free consultation

I’m currently offering a free 30-minute consultation to help you explore your options and protect your business. The earlier you seek professional advice for your business, the more options you have.

So don’t delay, reach out to me today by calling 07867 795 439 or emailing me at either: femi@femiogunshakin.com or femi.ogunshakin@nexa.law 

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Court of Appeal rejects HMRC’s argument for special treatment in winding-up dispute

Written by admin on . Posted in Bankruptcy, HMRC Investigations, Insolvency, Winding Up Petitions. No Comments on Court of Appeal rejects HMRC’s argument for special treatment in winding-up dispute

There’s a new government in Westminster and a “black hole” in the public finances so, HMRC might be forgiven for feeling under pressure to increase its recovery of unpaid taxes. But what is unforgivable is the heavy-handed way it seems to be going about it, particularly when it comes to winding-up petitions.

However, a welcome decision from the Court of Appeal in HMRC and Payroll & Pensions Services (PPS Umbrella Company) Ltd. shows that HMRC isn’t getting it all its own way.

Background

HMRC vs Payroll & Pensions Services (PPS Umbrella Company) Ltd [2023] EWHC 3308 (Ch) (9 Nov 2023) is a difficult and complicated case in which HMRC argued PPS should be wound up because it owes millions in national insurance contributions due to a “labour supply fraud” (i.e. treating workers as self-employed rather than employed).

At the original hearing to decide whether a provisional liquidator should be appointed, the Court also considered whether HMRC should give a cross-undertaking to pay damages to the company, if it turned out the order should not have been made.

While this may have appeared to be an uncontroversial issue, HMRC argued that they should not be required to give the undertaking, because they are “the Inland Revenue”.

But the Court disagreed: “If they are so highly confident of their position as they contend, it may be thought HMRC will have little difficulty in giving that undertaking.”

The High Court decided that an undertaking should be given by HMRC, and that it should be unlimited.

Court of Appeal decision

When the case came before the Court of Appeal in August 2024, it was asked to decide on the key issue of whether HMRC needed to provide a cross-undertaking in damages when applying for the appointment of provisional liquidators without notice?

The Court of Appeal upheld the High Court’s original decision that it should give an undertaking to safeguard directors’ interests if they successfully challenge the winding-up position.

In its reasoning, the Court emphasised:“[T]he importance of the court’s duty to prevent individuals from being wronged by the state…”

What’s the significance of this?

The Courts have a duty to ensure a fair balance between the interests of the parties. Companies and individuals are entitled to protection against unfairness by the State – and this includes HMRC, which is not entitled to behave as if the rules do not apply to it!

Being presented with a winding-up petition by HMRC can feel like a David and Goliath situation for many businesses, especially when HMRC takes a “computer says no” approach to reasoned arguments for compromise. But businesses should not be intimidated; it is in their interests to insist on due process being followed, and the courts have shown they are receptive to taxpayers who argue their case.

We say…

In an ideal world, just like other creditors, HMRC would negotiate with businesses and be prepared to collaborate with insolvency practitioners to ensure survival and the re-payment of debts.

Unfortunately, as many accountants and lawyer will attest, HMRC demonstrates a rigidly inflexible approach, fixated on the technical definition of insolvency to justify provisional liquidation proceedings at the drop of a hat, seemingly with very little consideration of the bigger picture.

Liquidation is an extreme response which can involve dawn raids on business premises and directors’ homes and draconian restrictions. It is a power which should be wielded with care but, it seems that HMRC doesn’t see it that way – in our recent experience it is currently very actively and aggressively pursuing these types of actions.

How can we help?

We have lots of experience and plenty of success stories when it comes to helping our clients negotiate with HMRC. We can advise you on the best steps to protect your business if you are facing insolvency issues, investigations or liquidation or other proceedings by HMRC.

Contact us today for a no obligation chat: 07867 795 439 (Femi) or 07713 564 324 (Jikoa)  or contact femi@femiogunshakin.com

Further reading

HMRC v Payroll & Pension Services (PPS Umbrella Company) Limited [2024] EWCA Civ 995 | Pump Court Tax Chambers (pumptax.com)

Umbrella fraud obscures employment status dispute | AccountingWEB

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Small businesses top tax gap defaulters

Written by admin on . Posted in HMRC Investigations, Income Tax, Insolvency, PAYE. No Comments on Small businesses top tax gap defaulters

The tax gap increased in 2022/2023, to a record £39.8 billion, with small businesses being blamed for around 60% of uncollected taxes.

The tax gap is the difference between the amount of tax that should, in theory, be paid to HMRC and, , what is actually paid. Despite the record high receipts in monetary terms, the overall tax gap has fallen in percentage terms. It is now estimated that 4.8% of taxes are unpaid compared with 7.4% back in 2005/06.

Small companies

The worst offenders are small limited companies, with the amount of unpaid corporation tax now standing at £10.9 billion, nearly triple the £3.7 billion of five years ago. This means:

  • In percentage terms, the tax gap for small companies is a somewhat alarming 32.2%.
  • Some 45% of small businesses have submitted an incorrect corporation tax return containing an under-declared tax liability.

By comparison, the tax gap for mid-sized companies is 6.7%, and for large companies is 2.9%.

High tax take

Recently released figures also give a stark illustration of how much the tax take has increased:

  • The theoretical amount of tax liabilities has been growing at around 15% a year, increasing from £640.1 billion for 2020/21 to £823.8 billion in 2022/23.
  • The theoretical amount has nearly doubled since 2005/06.

Tax receipts as a proportion of GDP over the past 20 years have previously been steady at around 28% but now stand at just over 30%.

Behaviour

The two types of behaviour contributing most to the tax gap are:

  • failure to take reasonable care; and
  • criminal actions.

Failure to take reasonable care means not spending the time and effort to make sure reported figures are correct. Directors of limited companies are generally expected to exercise a higher level of reasonable care compared to small sole traders.

If you need help with your tax liabilities, please get in touch.

HMRC’s summary of the latest tax gap figures can be found here.

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HMRC and Provisional Liquidations via S.234 Insolvency Act 1986

Written by admin on . Posted in HMRC Investigations, Insolvency, PAYE. No Comments on HMRC and Provisional Liquidations via S.234 Insolvency Act 1986

We are seeing a marked increase in HMRC’s use of provisional liquidations particularly where umbrella companies are concerned. Some readers may have an opinion on umbrella companies and may argue that HMRC are on the right track, personally, and in the immortal words of the fictional Francis Urquart: “You might very well think that. I couldn’t possibly comment“. That said, anyone who has been directly involved in working these cases will know how draconian the granting of a provisional liquidation order can be on the directors and by extension, their families.

Such orders include the appointment of a liquidator who quite naturally is charged with preserving the assets of the company, investigating the conduct of the directors and retrieving company assets where there have been dispositions contrary to both company and insolvency law. Clients have had their offices and homes searched; business accounts frozen and limitations imposed on their ability to draw funds from these and in some instances, their personal bank accounts.

There are reasons why the insolvency act provides for a provisional liquidation and no doubt HMRC have genuine reasons for seeking the court’s consent to the grant of such an order. Trust me when I say that judges in these (ex-parte) cases are no walk overs and put up quite strenuous counter arguments to submissions made by HMRC and their counsel but there is no denying that there is usually a public interest argument for the consideration of the taking of the decision to intervene in the company in this manner.

If you’ve read this far then you won’t be surprised to learn that there is a reason for today’s blog on this subject. We have received yet another request from a client in dire need for assistance with their case and as I thrive off unusual and/or complicated cases, I’m more than likely going to say yes to taking their instructions. The thing is; despite the onboarding of colleagues to my team, I am nearing capacity, and besides this, I really could do with the input of a tax lawyer/investigator/specialist with experience in this area and thought I’d reach out to my LinkedIn contacts to see who might be interested in working with me on one of these cases – needless to say this would be on a consultancy basis.

So, sticking with my tv/film references, as Gabrielle Union once said, if you got it: “Bring It” (please!?!). Might be best to call, DM or email me for an initial chat.

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Company insolvencies on an upward trend

Written by admin on . Posted in Bankruptcy, Director Disqualification, Insolvency, Litigation & Dispute Resolution, Restructuring & Insolvency. No Comments on Company insolvencies on an upward trend

Although showing a slight improvement from March, the number of company insolvencies in April of this year was more than double the number from April 2021. This shows just how important it is to get advice sooner rather than later if your company is experiencing problems.

The majority of insolvencies were creditors’ voluntary liquidations (CVLs):

  Total insolvencies CVLs
April 2019 1,429 1,024
April 2020 1,199    933
April 2021    925    815
April 2022 1,991 1,777

Figures already available for May show no improvement. The government’s support measures kept insolvencies at bay during the Covid-19 pandemic, but the expected post-pandemic boom has not materialised for many businesses, followed instead by other damaging economic factors such as high inflation, the Ukraine war and supply chain challenges due to continuing Chinese lockdowns.

The insolvency figures suggest many directors lack confidence in their company’s ability to continue trading in the current climate possibly pre-empting later forced closure by bringing forward a difficult decision. Directors who have any doubts about their business are advised to seek advice as soon as possible. There are two tests which can act as a warning sign of insolvency:

  • Cash flow test: Signs that a company is failing this test include late payment of suppliers and falling behind with payments to HMRC.
  • Balance sheet test: Where a company’s liabilities exceed the value of its assets.

For small businesses and the self-employed, free advice can be obtained from the Business Debtline charity.

Avoiding insolvency

Two recently introduced measures might help a company avoid formal insolvency procedures.

  • A moratorium period gives a struggling business a formal breathing space from creditors to explore rescue and restructuring options.
  • A new type of restructuring plan can be implemented even if certain classes of creditors vote against it.

Guidance on tell-tale signs of potential insolvency, and how managing an insolvent company incorrectly can lead to personal liability and/or being disqualified as a director, can be found here.

Please get in touch with us sooner rather than later if you believe you may need help.

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Debt evading directors face new Insolvency Service powers

Written by admin on . Posted in Company Director, Director Disqualification, Insolvency. No Comments on Debt evading directors face new Insolvency Service powers

Directors who abuse the company dissolution process in order to evade debts, including the repayment of government-backed Covid-19 business loans, will be subject to stronger powers given to the Insolvency Service.

These new powers were included in the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act enacted on 15 December last year. Previously, the Insolvency Service could only investigate directors of companies entering insolvency but can now also look at directors of dissolved companies.

Phoenixism

Complaints regarding dissolved companies often relate to new companies that have taken over the business of the dissolved company. The new company will invariably have the same directors, take over assets – such as vehicles – but with creditors left unpaid. In some cases, this happens multiple times.

Sanctions

If misconduct is found, a director of a dissolved company can be disqualified as a company director for up to 15 years. In more serious cases, the director could be prosecuted.

It is also possible for a court order to be made requiring a former director of a dissolved company, who has been disqualified, to pay compensation to creditors who have lost out due to their fraudulent behaviour. This aspect applies retrospectively, so former directors can be held liable to creditors despite the fraudulent conduct taking place prior to the Act’s commencement.

Business rates

Along with the changes aimed at former directors, the Act has a business rates aspect. The Act makes it clear that Covid-related changes cannot be used as grounds for a business rates appeal on the basis of “material change of circumstances”.

Businesses that have seen their operations severely curtailed as a result of Covid-19 restrictions will likely be disapproving of this response; they are expected to keep paying business rates on the basis of rateable values set in a different world before the current Coronavirus pandemic.

The only consolation is the £1.5 billion provided for business rates relief to sectors that have suffered the most economically but are not eligible for existing support.

The government’s original press release for the Bill and more detailed information can be found here.

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