HMRC targeting pre-packs with up-front VAT demand

Little-known clause used to secure future tax debts

By Insolvency News, 8 November 2009. Posted in Legal & Technical

The Times last week reported that HMRC is targeting phoenix companies with demands of up to six months projected VAT before granting a VAT registration.

Some businesses are facing bills of £100,000 before being able to recommence trading.  HMRC is particularly targetting pre-pack administrations, which often see the crown write-off large PAYE and VAT debts.

HMRC has revived a little-known VAT law to demand from these companies a penalty fee or “security for future VAT”. The amount owed is calculated using a registration form on which the entrepreneur declares estimated future revenue.

Stephen Alamabritis, of the Federation of Small Businesses  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 says that it has issued nearly 2,000 fines since April last year, but that the purpose was “not to prevent businesses from trading but to protect risk to future revenue to the Exchequer and encourage compliance”.

Comments What do you think?

  • Anonymous | 13:46 9 November 2009

    most prepacks constitute a TOGC so there will be no VAT to pay

  • Anonymous | 15:41 9 November 2009

    Previous commenter: I think the point is that they are not referring to the pre-pack transaction itself, but rather they are demanding a VAT bond from the phoenix company for future VAT liabilites.

  • Dinesh | 09:59 10 November 2009

    This will stop people going to business and the HMRC will lose revenue as a result so why not take a chance and allow the country to prosper.

  • Anonymous | 21:39 10 November 2009

    The biggest challenge to most phoenix plans is cash flow / financing. Six months upfront VAT payment will be a significant hurdle to over come which will probably prevent the majority of pre-packs from even getting off the ground. So no business recovery, no jobs for employees, no prospect for suppliers to recover their exposure, no continuity to customers and no VAT / NI / Corporation Tax revenue for HMRC - great move Mr Brown!!

  • David Stephenson | 09:14 11 November 2009

    It is disheartening to see the constant anti pre-pack stance taken by so many government agencies and commentators, when this tool, properly used, can do so much to save jobs and enhance dividends. R3 is not banging the pro pre-pack drum hard enough! For example, why is it not a requirement for the report to the Insolvency Service on SIP 16 to include the number of jobs saved and then mandatory for the Service to include those figures in its reports on pre-pack activity?

    Do not give us the tools to do our jobs well and then create conditions where our efforts are doomed to fail!

  • Alan R Price | 12:44 11 November 2009

    This must be contrary to public policy on restraint of trade. How can it be right to make it a legal requirement to register for VAT but then deny people the ability to comply with the law by putting obstacles in their way? It could effectively prevent people from earning a living.

    If HMRC have reservations about a particular trader they should use their powers to monitor and enforce compliance/payment, rather than deny people the right to work.

Follow these comments

We'll send you an email whenever there's a new comment. No spam, promise.


Add a comment

You must be logged in to comment on articles and blog posts. Log in or Register