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HMRC Aggressively Pursues VAT Debts

08 July 2013   (0 Comments)
Posted by: Author: Jason Gorringe
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Author: Jason Gorringe

Newly released figures from the UK tax authority, HM Revenue and Customs, shows that the agency managed to reduce the amount of VAT overdue by GBP200m (USD300m) in the fiscal year 2012/13, but the outstanding overdue balance remains significant at GBP2.5bn.

HMRC records obtained by Syscap, a leading independent finance provider, show that the tax man managed to bring down the amount of overdue VAT largely due to the increased use of distraint (the right to seize business assets) and by utilizing external debt collection agencies.

HMRC almost doubled its use of distraint to recover VAT last year, compared to a year earlier, using these powers a total of 4,746 times. It also more than doubled its spending on external debt collectors to almost GBP13m.

Syscap found that in many cases, HMRC had brought proceedings against VAT debtors that had yet to receive VAT from their customers, exacerbating the challenges in particular on small companies of accounting under the accrual method, where tax liability is deemed even before cash is exchanged.

Adding to these cash flow pressures, unincorporated businesses such as sole traders and large partnerships have to pay half of their estimated annual tax liability on their profits in advance (on account), based on their previous year's taxable balance, Philip White, CEO of Syscap, pointed out.

"[For] companies under financial pressure, accessing the necessary funds to pay a large tax bill, when they may not even have received payment from customers and clients yet, can be a huge challenge. Even very profitable companies can find their cash flow tightly squeezed if their invoices aren't paid promptly, but unfortunately for them their tax deadlines won't wait," White said.

"If a business does fall into arrears because they can't pay, they're caught between a rock and a hard place because HMRC can impose fines and interest charges and is becoming increasingly draconian in seizing assets in order to recoup the outstanding balance. HMRC used to be relatively forgiving - through its Time to Pay Scheme - but those days are gone.".


Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.


The Act requires that a minimum academic and practical requirments be set to register with a controlling body. Click here for the minimum requirements of SAIT.

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