Client recently had VAT inspection resulting in an assessment of additional VAT to pay, and needs time to pay this VAT and some CT. HMRC have asked for a proposal in writing. One of the reasons the client needs time to pay is that one of the two director-shareholders has another company that is in trouble and has had to withdraw virtually his entire DLA balance to fund it. I understand that if the other business went under, the bank would chase him for their money, and may try to take funds from the company which is my client. I also understand he can take no more money from my client company for this purpose.
Is this the sort of thing I should put in the letter with the proposal, or would it have an adverse effect?
Replies (16)
Please login or register to join the discussion.
HMRC point of view
HMRC will say that the company shouldn't let a director take funds out of the company before paying the tax bill.
Agree with Peter
While I agree with Peter's comment, my suggestion would be to stress other points like reduced cash-flow (as long as you can back this up). You may also be able to stress that this is a short term problem rather than something which will continue and perhaps lead to the company's demise.
In effect you are trying to put together something like 'if you will only do this, we can get to the green fields beyond'. Any mention of endless mud is thus best avoided.
commercial logic
it would be interesting to know what other folk think of my own approach, which is to imagine George Osborne sitting beside me and put in writing the commercial position of UK PLC.
Two examples:
1. I had a VAT debt chasing meeting in November. Very aggressive, when I explained why we were paying them nothing that day they left saying the winding up petition would be imminent. I wrote with the same information I'd given in the meeting: Client selling her rental property to clear tax bills, imminent £9k insurance payout, mitigation for client in terms of flooding and illness. I also said that the commercial logic of winding up a solvent company with 13 staff for a £15k VAT bill despite the fact that the director was selling a property to clear the debt escarped me.
The result of this was no winding up petition.
2. Just today I had a client very worried about them not accepting a 9 month payment plan of corporation tax bill. I explained to HMRC in writing 2 weeks ago that if they wound up this company - which has £200 or so of assets - then the country loses £3k in corporation tax plus whatever HMRC spends winding up the company. Or they can have their £3k in full by October.
I explained this again by phone today and stressed the point that in my view UK PLC would be £3k or more worse off if they pressed ahead. They called back ten minutes later accepting my client's proposal.
In my view - interesting to get other views - I have managed to put the officers and their line managers in a difficult position if they proceed with aggressive tactics. Not only will the Treasury be worse off, there is written evidence that those specific HMRC people knowingly pressed ahead with a plan which would make the Treasury worse off. Not a nice place to be right now within HMRC, I suspect.
Positive or negative
I think the proposal to show that payment can be made will swing it.
Proposal only
I would have thought that it would be better if the proposal was simply that and didn't discuss the reasons. HMRC may well accept the proposal. If they don't you can then explain any special circumstances. If the client simply pays under the proposal HMRC may not take matters further because the payments would undermine their actions.
One idea which may have helped
I recommended to a client that they write the letter (rather than us) and include a cheque rather than making the payment via BACs. Letter and money made the difference!
We gave client a draft to use.