VAT - Are you struggling to pay on time?
With the current economic slow down it is inevitable that some businesses cash flow will take the impact.
So what will happen if you don't have the funds to pay the VAT man on time?
First and foremost, ensure that your VAT return is submitted on time, failure to do so will prompt HMRC to raise an assessment. Penaltiesare not incurred for a first assessment, but if you are assessed andpay less than your return should be it could cause problems in thefuture, especially as the new penalties regime for errors would apply.
The best route is honesty, don't bury your head in the sand and hope it will go away.
If you cannot make the payment or only a part payment, phone the localHMRC debt management centre, you should be able to get the number fromphoning their "national advice service helpline" on 0845 010 9000.
Explain your situation clearly and calculate a date when you will beable to make a payment. For first time defaults they are likely to beunderstanding, especially if your cash flow crisis is a short termproblem. Follow up your conversation in writing and retain proof ofpostage.
When a payment deadline is missed (regardless of whether you havebeen in contact) HMRC will automatically issue you with a "surchargeliability notice". The first one will not have any surchargesapplied (if your company turnover is less than £150,000 per annum) butany subsequent ones that are made within 12 months of the first onewill. Each time you default you enter into a new 12 month defaultsystem, so if you default within the 12 months the percentage ratesincrease.
2nd default 2% of the VAT outstanding within 12 months
3rd default 5% of the VAT outstanding within 12 months from above
4th default 10% of the VAT outstanding within 12 months from above
5th default 15% of the VAT outstanding within 12 months from above
If, where the 2% and 5% surcharges are less than £400 when thepercentage is charged on the amount of VAT outstanding, no surchargewill be levied but HMRC will record this and enter you into their 12month default system. Each band of surcharges re-starts the 12 monthperiod in which, if you default, it will move to the higher band.
If you think that your cash flow crisis will be long lived, considertaking out a personal loan. The interest rates that you could securemay be lower than the penalty surcharges.
If you are not already, change over to the cash accounting scheme;this means you don't have to pay over sales tax until you have receivedit. Consider a flat rate scheme; if your purchases are minimal it maybe a better option for you.