The Government, this week, has been accused of damaging enterprise by demanding that owners of previously failed businesses pay up to six months of VAT in order to be given the opportunity to start up again.
This means that some business owners are facing bills of up to £100,000 after a move by HM Revenue and Customs (HMRC) to target companies that have risen from the ashes of businesses that had previously gone bust.
Small businesses are being made insolvent at a rate of approximately 120 per day and a staggering 40,000 are expected to go under next year alone.
These are hardly moves from a compassionate Government who are trying their utmost _to help people and businesses during the ‘credit crunch’.
In hard times and spells of recession it is important for everyone to work together to restore the country to its previous glory.
However, this is simply not achievable if the Government and its departments seem hell-bent on collecting more money for themselves and not helping out the ‘little people’
HMRC’s intention is to hit businesses that make use of the pre-pack administration measures of the Enterprise Act 2006.
The measures of the Enterprise Act 2006 allows business owners to sell assets of a failed business to a new company (usually a dormant company owned by the former management) and also wipes out debts; including unpaid tax liabilities.
The Revenue has revived an obscure VAT law to demand a penalty or “security for future VAT”.
This seems ludicrous as, normally, products and services are paid for after they have been utilised and not before so why should businesses, who have, don’t forget, previously struggled, pay a ‘security for future VAT.’
The amount of value added tax due is calculated using a registration form on which the business declares estimated future takings.
KinsellaTax is concerned that this calculation, in itself, could lead to problems as HMRC may just find non-compliance or business owners under-declaring their estimated future takings.
Up until four years ago, HMRC had preferential status on the list of creditors when a business collapsed; this, however, is no longer the case.
It seems that HMRC are introducing these measures to make up for the loss in Revenue from collapsed businesses and their unpaid debts.
Stephen Alamabritis, of the Federation of Small Businesses, believes that this move is in conflict with the Enterprise Act 2006.
The Act was passed in a bid to encourage failed business owners to start up again.
Mr Alamabritis said that the proposed fines were bullying business owners and that the start-up levels of businesses in the UK were threatened.
KinsellaTax agrees with Mr Alamabritis on this issue – Does the Government honestly expect the country to rise out of this recession and build itself up again if business owners are faced with huge fines to even start up a business?
Mr Alamabritis urged the Government to:-
“Take its foot off this particular pedal and allow businesses, where there is no proven fraud or criminal activity involved, to set up again in the normal way.”
HMRC official figures show that 2,000 fines have been issued since April 2008.
They claim the purpose is:-
“Not to prevent businesses from trading but to protect risk to future revenue to the Exchequer and encourage compliance”.
The Government should, at the present time, be more concerned with helping small business owners to help strengthen the economy than with collecting money for themselves – as usual.
They also pointed out that taxpayers could ask HMRC to reconsider a decision – as with all HMRC assessments; appeals can be made.
Kevin Kinsella Jnr of KinsellaTax says:-
“Businesses that are registered and trying to trade in these times are in line for draconian penalties to prop up the shortfalls caused by failed banks and other institutions who have mainly caused the ‘credit crunch’ but medium to small businesses are driven mad by HMRC penalties for late payments etc.
One rule for the rich and one for the poor.”
If you are trying to re-set up your business and have been faced with a huge VAT bill then call KinsellaTax NOW on 0800 471 4546.
With over 120 years’ experience and a team of specialised tax and value added tax investigators.