I have a client, who I prepare their year end accounts for but who handles their own VAT (small contractor).
They have correctly submitted their VAT returns, although in the past they submitted a return, got a receipt, but HMRC cocked something up at their end and so the debt is not showing at HMRC's end. My client has been open and frank with them and tried to get it paid but so far HMRC have not been able to sort it out (amount is between £3-6k (I'm being vague just to protect my client in public)). So the company owes this VAT, even if HMRC systems say they don't agree.
We are now in a position where we are winding up the company via the capital distribution route. What on earth happens to this VAT liability?
Ideally HMRC would accept this amount but they don't. (You read it right - we owe HMRC this money, we've told them both officially and unofficially we owe them this money, we have this money ready for them, but something at their end means that the can't recognise it, so we are a bit in limbo)
I can see a few options
- Recognise it as some sort of gain in the final set of accounts, pay CT on it and treat it as part of the amount to be distributed to the shareholders (I don't feel comfortable doing this as it is not a gain, other than as a result of the refusal of HMRC to acknowledge the money owed to them)
- Keep it as a liability, wait for HMRC to claim the liability as part of the winding up process. If the claim it great, if not then...?
- Treat it as a distribution to shareholders and taxed accordingly?
- Treat it as money held on trust for the wound up company to be settled??? (Not sure this is possible, or makes any legal sense)
- Maybe in the final VAT return make an adjustment so that the liability is now recognised and effectively ignore the previously filed/missing at HMRC's end VAT return
Obviously HMRC get informed of the winding up, and the company would need to be deregistered for VAT before then so they have plenty of opportunity to pick this up (as well as multiple conversations in the past of explicit "we owe you this money, please take it", type conversations).
What would you do in this situation? We only want to do the right thing and are not interested in finding a way to keep the money, but don't want the winding up to be indefinately put on hold whilst HMRC continue to not recognise the debt.
I'm tempted with option 3 but would not want to potentially incur a double charge.
Your thoughts and wisdom are welcomed.