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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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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 

Photo by Austin Kehmeier on Unsplash

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

Photo by Jason Rosewell on Unsplash

Winding-up petitions on the rise in HMRC squeeze

Written by admin on . Posted in Bankruptcy, Company Insolvency, Litigation & Dispute Resolution, Winding Up Petitions. No Comments on Winding-up petitions on the rise in HMRC squeeze

With HMRC under pressure to collect more tax owed, it is moving away from the tolerance shown during the pandemic and back towards a normal level of debt enforcement activity. As a result, the number of company winding-up petitions being instigated by HMRC is rising rapidly.

HMRC’s use of winding-up petitions to actively chase the money it is owed comes at the worst possible time as many companies struggle to cope with inflationary pressures, higher interest costs and reduced consumer spending. HMRC’s aim is to recover tax owed from a company’s liquidated assets.

Although the tax gap (the difference between the amount of tax that should, in theory, be paid to HMRC, and what is actually paid) has declined in recent years, it is still 5.2% or £32bn.

Time-to-pay arrangements

For a company experiencing difficulty paying its tax liabilities, the best way forward is to agree to a time-to-pay arrangement with HMRC. This avoids the possibility of a winding-up petition, although early engagement with HMRC is essential.

  • An affordable, regular monthly payment will be agreed based on the specific financial circumstances of the company. A good approach is to not be overambitious with the monthly repayment value, so there is less chance of being unable to meet future payments.
  • HMRC will want to know about the company’s financial prospects (cashflow forecasts and budgets may be required), what efforts have made to raise funds, and what has been done to try and pay tax liabilities.
  • The arrangement is designed to be flexible, so the monthly payment can be adjusted over time.

Prior to agreeing to a time-to-pay arrangement, HMRC may want to see company assets released, with the funds raised used to repay tax. This might mean selling vehicles, increasing business borrowing or directors putting personal funds into the company.

HMRC’s guidance to paying a debt with a time-to-pay arrangement can be found here.

Photo by Melinda Gimpel on Unsplash